Having an emergency fund of three months might already be a finance commandment in your books, but in a time of a pandemic, it’s more imperative than ever. Penny explains, “An emergency fund serves as a financial safety net in the event of temporary job loss, short-term illness, or other expected expenses. On average, an emergency fund of three months of income is recommended. Although, it should be noted that the recommended amount is adjusted upwards in times of economic instability to six months of income in savings, as it should cover you long enough for you to get back on your feet.”

With the uncertainty brought about by Covid-19, Penny recommends having emergency funds of at least six months of your expenditure including essential expenses like monthly mortgages and insurance. As many are taking a longer time than usual to find another job, hence six to twelve months of emergency funds is prudent.

Contrary to popular opinion, having a large safety net might not be in your best interest. Penny shares, “Two common mistakes that I encounter are people with less than three months of their income in savings for emergency funds and people with excess emergency funds, sometimes exceeding three years of their income. If you have too much money in your emergency fund, you are losing out due to inflation rates. Moreover, the compounding loss in opportunity cost in not investing in the right financial products can add up to a huge deficit which might have been used for your children’s education or retirement fund.”

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Many people who buy insurance early in their careers also do not update their policies as they get older and are earning more. Whatever the reason, the cost of it all funnels down to one thing: that your coverage does not cover your full income which could be a problem if you have adjusted their expenses upwards.

Look into or re-evaluate your insurance. Make sure your coverage is updated as your income increases over the years, along with your expenses as well as dependents. If you do not have any insurance, there is no time like the present.

According to Penny, “As we progress in our career and as we get older, our income increases and we are able to take on more responsibilities like taking care of our aged parents or starting our own family with child(ren). These two groups of people are our dependents, and if illness were to strike us, who are they going to depend on? Will they have enough based on insurance policies that we bought five or ten years ago? Or do we push our responsibilities to our siblings who might also be supporting their own families? To take into account all these shifting factors it is important to do an annual review or whenever you make any major transitions in life.”

This one might seem frivolous or inconsequential, but as Penny describes it: Imagine an archer shooting at a target, a minuscule deviation of one degree will result in the arrow falling further off the mark the further the target is. Similarly, a long term financial plan can fall off the mark of your financial goals.

Clearly define your financial goals. Do not just think about saving an abstract amount of money but think about what the money will allow you to do. Once you have clarity on the purpose of your financial goals, working out a reasonable timeframe and the amount you need becomes clearer.

It is also a helpful way to start thinking about how you’re spending and how you should be spending. When you’re clear about your financial goals, factoring in maintaining a healthy buffer in a savings account for emergencies and other necessary debts and expenses like mortgage or children – whatever is left over is money that you are free to spend.

Set a monthly budget and stick to it. Personal shopping can be a form of self-care so setting aside money for personal shopping is fine as long as you are spending within your means. After setting aside tax, a general recommended allocation is the 50-30-20 rule, where income is allocated 50 per cent on Essentials, 30 per cent for Savings and Investments, and 20 per cent on non-essentials. It is crucial to make sure that your savings are growing in proportion to your income especially at a time in your career when your income will be growing.

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