In my previous blog post, I shared about the importance of emergency funds in times of crisis. This is a fundamental fact that most people omit in their lives. This is because most people live in their past or present, but not in and for their future.
As such, their attitude towards life is that of a “Happy-go-lucky” type. While this kind of attitude may be good when you are a baby or a student, but when you are a grown adult with a family, and have parents to look after, this “happy-go-lucky” attitude may become your stumbling block to your future success as a family man or woman.
Therefore, be a little paranoia about your future. Ask yourself “What Ifs” questions. As the motto of Boy Scout – “Be Prepared.”
How to Build an Emergency Fund?
Building an emergency fund is not as hard as you might think. All it takes is just some simple behavioral changes in your spending habits and you are well on your way to build your emergency fund and wealth.
For example, instead of taking a feeder bus service home, walk home. Doing so is helpful for your physical health and pocketbook.
Instead of driving to your appointments, take public transport. Reduce your carbon footprint. Save money. Save the planet.
If you are a compulsive credit card user, DO NOT CUT UP YOUR CREDIT CARDS. Just leave all your credit cards with your in-laws. Doing so will see your credit card bills plunge immediately.
There are so many ways to save money. You may think these are small amounts, but they add up nicely over time. No one gets rich and wealthy overnight but over time. And all these ways are so doable and applicable immediately. It all depends on your level of desire, commitment, and discipline. Do you want a better financial life than you have now?
But Emergency Funds Run Out
It is true. And I am not about to say otherwise. No matter how big an emergency fund you have now, it will run out if there is no replenishment. Simple common sense.
This is the reason why you need to have a replenishment vehicle to replenish your emergency funds as you use it. This is where the power of passive income comes in.
Passive income not only can help you build your wealth faster than your active income, but it can also help you preserve what you have built in a crisis like the COVID-19 pandemic.
Property (Fully paid for) rental income, Dividend income, Annuity income, Bond coupons, and FX trading income are just 5 types of passive income that I believe has the power to help you tide over any financial or economic crisis.
However, whether you make 100,000SGD or 1,000,000SGD annually, you need to always maintain your living standards on the low side to maximize the positive effects of your passive income in a crisis. You want to make sure that your withdrawal rate is lower than your replenishment rate.
This is because when your withdrawal rate is lower than your replenishment rate. You will preserve your wealth and have no need to worry at all should the economic crisis or recession lasts forever.
Start Where You Are
Most people are procrastinators when it comes to financial matters. This is not ideal. There is always an opportunity cost for starting late in financial planning. You need to start wherever you are, and with whatever you have. You need to start NOW.
Regardless of your current income level, history has proven that a slight behavioral change in your spending habits will help you build your wealth and emergency fund no matter the size.
So, stop giving yourself those lame excuses. Stop cheating yourself and delaying your financial success. Start today.
Recessions and economic crisis are getting more frequent than before. This is a fact. Ask yourself, “Do you want to emerge out of the next recession or economic crisis bigger than what you are now?”
Thank you for reading this article.
CEO & Founder, ALGOINSIGHTS PTE LTD