The first thing you need to do is work out your monthly budget so you can understand where your money is going and identify what are essential expenses. From there, sift out the expenses that are actually “wants”, not “needs”. Reduce unnecessary spending and make sure you establish a regular savings plan – be it monthly or by per paycheque – that is solely meant for emergency use only.

“It’s like dieting,” explains Lynette Lim, Director and Co-CEO of Phillip Capital Inc. of the US operations of the PhillipCapital Group, whose headquarters is in Singapore. “The easiest way to do it over the long term is to be disciplined and stick to the plan.”

She suggests setting up a monthly deposit via Giro, which automatically deducts a set amount of money from your monthly salary and deposits it into a separate savings account. This way, your emergency fund is continually topped up without your having to think about it.

“Saving the money right from the get-go means there is no discussion or thought required. It is just done,” says Lynette. “Once the savings have been set aside, you can then use the remaining funds to cover your monthly expenses and spend it however you like.”

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It is not called an emergency for nothing. Often, the money is needed right away for those unexpected bills. Which means that the stocks, bonds and mutual funds that are locked away in your investment portfolio will do little good in your immediate time of need. If someone in your family suddenly requires medical or dental surgery, or a major appliance breaks down, or you suddenly lose your job, what you need is cold, hard, accessible cash.

Valerie Tan, Head of Business Risk Management in a global bank, advises: “Be conscious to set aside cash and not overcommit or invest in assets that cannot be easily liquidated.”

An emergency fund is for quick access whereas assets like stocks, bonds or real estate should be allowed to stay in the market for long-term growth so you can accrue wealth over time – a different form of savings for the long-term, compared to an emergency fund which is for immediate use.

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Exactly how much should you set aside for an emergency fund?

“Financial advisors recommend at least six months’ worth of expenses in cash savings, but I personally recommend aiming for nine to 12 months as you age, because it may take a longer time to find another job, the older you get,” says Valerie.

“If you don’t have any cash savings at all, it is never too late to start building it,” she continues. “Start slowly by setting aside 20 to 25 per cent of monthly income in cash savings. Essentially, it will require cutting down on variable expenses that are not essential to basic needs.”

That might mean eating at home more often instead of spending on takeout, for example. When shopping, look for discounts and deals instead of paying full price. Or take public transport instead of hailing a taxi. These simple things may not sound like much, but collectively, they add up and can make a significant difference.

If trying to save 20 percent of your income seems insurmountable, start with what you can, be it $10 or $20. The important thing is to start that emergency fund and put it in a high-interest savings account so your money can compound at a higher rate.

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With young children in tow, it is all the more imperative to have emergency funds set aside to cover both living expenses and liabilities in case of an unforeseen emergency, says Cassandra Wee, Head of Insurance at SingSaver. Based on your budget and cash flow, Cassandra advises putting in place sufficient medical or hospitalisation coverage (like Integrated Shield Plan) and a Personal Accident Coverage Plan.

“While infants and toddlers have much higher essential costs, such as necessities like formula milk, diapers, caregiving and education costs, young children are more active and might be more prone to accidents and infectious diseases like Hand Foot Mouth Disease (HFMD),” she points out.

It is never too early to start saving for higher education either. Besides healthcare, putting money towards your children’s future tertiary education is a big part of financial planning.

“When done in combination with government subsidies (Baby Bonus), a regular savings plan ensures a healthy cushion once your child comes of age,” says Cassandra. “Look for a savings account that offers a preferential interest rate. I use the DBS Multiplier Account, since my salary crediting, credit card, mortgage payment and insurance payment are all with the same bank.”

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With a recession lurking in the foreseeable future, that sense of impending doom and rising panic can quickly overwhelm us. As the bills stack up and the funds in our accounts seem to get depleted faster than they are getting replenished, it is no surprise that talk about finances can cause anxiety for many.

To which Lynette has a word of advice: “Emotional fear about money (or lack thereof) is a real thing, as it comes from a place of scarcity. But the main thing is to remain calm and collected, and do not panic about the future. We cannot control the future, but like the Serenity Prayer reminds us, we should focus on the things that we can control.”

What we can control is the money we do have. That means budgeting wisely, spending only when necessary, and getting that emergency savings fund established right away, even if it means putting in pennies to start.

It may be daunting to start an emergency fund during turbulent times, but Cassandra says she cannot think of a more appropriate time to evaluate your financial habits, cut unnecessary costs and start saving even more.

“After all, financial security is key to a stress-free life,” she says. “An emergency fund is a worthy long-term investment that will provide you with a sense of financial security to tide through difficult periods.”

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Text: Annabel Middleton