Protect your loved ones’ future from life’s uncertainties
You need to set aside 3 to 12 months of your expenses, not your salary, in order to set aside sufficient emergency funds.
If you are a frugal person, this can be a lower figure. In any case, this exercise forces you to relook where your money is going, and whether you can cut down any unnecessary costs.
In case of an emergency, the last thing you would want is to have your emergency fund locked up in illiquid or risky assets. Thus, you should keep your emergency fund liquid in order to access it easily if there is an emergency.
As the phrase “out of sight, out of mind” suggests, setting up a separate savings account will help in keeping the money away and reduces the temptation to tap on it.
Starting your emergency fund does not have to be hard. If you have problems with committing a significant amount of your income to your emergency fund, you can always start small and gradually build up an emergency fund.