There are many things in our lives that cannot be predicted. Unexpected things can happen at any time, for example sudden hospitalization, car breakdown, job loss, and others.
When these unexpected conditions befall you, that's when you need an emergency fund to prevent disruption to your financial cash flow. Preparing an emergency fund can give you peace of mind because you can manage the fund when unexpected costs suddenly arise.
So, what needs to be prepared to have an emergency fund? How to calculate the ideal emergency fund? Read the following article to find out more.
Key Takeaways:
- When these unexpected conditions befall you, that's when you need an emergency fund to prevent disruption to your financial cash flow.
- The definition of emergency fund is the allocation of money used for various purposes in emergency situations.
- The emergency fund target you want to achieve must match your current financial condition. For that, you must calculate the emergency fund you can achieve so that the funds you want to achieve match your ability.
Getting to Know What Emergency Funds Are
The definition of emergency fund is the allocation of money used for various purposes in emergency situations. This emergency situation refers to situations that cannot be predicted, for example caused by disasters or other things.
Some examples of emergency conditions where you can use emergency funds, include:
- Vehicle care or repair costs after an accident.
- Medical costs due to illness, which must be paid because the insurance/health guarantee owned cannot cover all medical costs.
- Living costs due to accidents and layoffs. When we suddenly have an accident and cannot make a living, and when you are suddenly fired, then an emergency fund will be needed to meet daily needs temporarily while you look for other sources of income.
- Vehicle or house repair costs due to disaster, for example due to natural disasters, such as earthquakes, floods, or fires.
5 Tips for Preparing Ideal Emergency Funds
Want to start preparing an emergency fund for yourself? Follow these tips to collect ideal emergency funds.
Understanding Emergency Fund Needs
Everyone has different emergency fund needs. Ideally, the amount of emergency funds that a person needs to prepare is 6-12 times the amount of monthly expenses. The amount of emergency funds depends on the number of dependents and consumption patterns of each individual. According to Kompas (2025) Emergency funds are basically funds that are deliberately prepared and stored separately from daily needs and investment funds. The purpose is to provide adequate financial protection when emergency situations occur.
For those of you who are still single, the amount of emergency funds needed is sufficient 6 times the amount of monthly expenses. Meanwhile, for those of you who are married or have dependents, the emergency funds needed are at least 9-12 times monthly expenses.
If viewed from its magnitude, emergency fund needs may be very large. However, in the process of preparing it, you do not need to allocate money in large amounts at once.
You can start collecting emergency funds by setting aside a small portion of your income consistently. In the process, you can increase the amount you save as your income increases.
Stay Disciplined and Have Commitment
In addition to the emergency fund allocation, there are various other fund allocations that you certainly need to meet daily needs. When compared to emergency fund allocations, these other routine fund allocations tend to be more dynamic, where emergency funds are generally only used at certain times.
Emergency funds have an anticipatory function, so they must be placed in a place that is easily accessible or liquidated. Added to the fact that the nominal amount of emergency funds that must be prepared is not small, makes emergency funds difficult to prepare.
For that, you need to have high discipline and commitment so that you do not tamper with the deposited and easily accessible emergency fund allocation.
Get used to always setting aside income for emergency fund allocation when you have just received income, not after making expenses.
Always remember the main purpose of financial planning and the impact that may be felt if you do not have an emergency fund every time you want to access emergency fund allocation.
Opening a Special Emergency Fund Account
Like liquids, money also has the property of being easily mixed. For that, separating financial containers can be one effective way to manage liquids. The Ministry of Finance Room (2024) suggests Emergency funds must be stored in a safe place, easily accessible, but still provide returns there are several options for storing emergency funds, including savings accounts.
Opening a new account, specifically for emergency funds, can be the right solution for you. This special savings account can help you separate emergency funds so they don't mix with other funds.
To store emergency funds, choose financial products that do not require a large initial balance when opening an account. Also remember to consider the monthly fees in the savings product.
In addition, you can also consider the ease of fund disbursement when placing emergency funds.
Emergency Funds Are Not Investments
Although emergency funds are designed and planned to be stored for a long period of time and only used in certain situations, you need to remember that emergency funds are different from investments.
In investment, you save with the hope of additional results (return), where in that return there are also certain risks, the magnitude of the risk depending on the type of investment instrument chosen.
Conversely, in emergency funds the instrument used as a storage place for emergency funds is a low-risk instrument.
For example, suppose you place emergency funds in stock instruments. Then, at some point when an emergency condition occurs and you want to liquidate emergency funds, it may be that at that time the stock price is in a low position. At that time, emergency funds certainly cannot function optimally.
Always remember to ensure the financial product chosen when wanting to place emergency funds. Store emergency funds in legal financial products that are registered and supervised by the Financial Services Authority (OJK).
Controlling and Evaluating Financial Conditions Regularly
In addition to discipline and commitment, you must also be patient and consistent in saving for emergency funds. In that process, you can control and evaluate financial conditions regularly.
This control and evaluation is done to reduce expenses that are not actually urgent. That way, you can train yourself to prioritize which are needs and which are wants.
For example, you can create budget allocations or record personal financial cash flow. Reduce monthly expenses for less important categories, so you can reach your emergency fund target faster.
Read Also: Wants and Needs: Differentiate for Healthy Finances
3 Effective Ways to Calculate Emergency Funds
The emergency fund target you want to achieve must match your current financial condition. For that, you must calculate the emergency fund you can achieve so that the funds you want to achieve match your ability.
Below are easy steps to calculate emergency funds, namely:
Collect Monthly Expense Information
The first step is to collect all monthly expense information which can be done by looking at monthly expense reports from bank account statements or transaction history of online payment accounts. Even, if possible, you also need to look at monthly expenses in cash form. Prudential Indonesia (2023) explains that recording all monthly expenses, including cash costs, is an important first step to calculate accurate emergency funds.
Therefore, it is important for you to record financial transactions in any format so you can evaluate finances and calculate the emergency funds you need to collect. You can start recording routine expenses, from daily living costs, bills, accommodation, transportation costs, to debt installments.
Calculate Total Monthly Expenses
Next, calculate the total routine expenses that have been recorded. Calculate all costs you incur. The results of this calculation will be the total of expenses you make per month.
Multiply Total Monthly Expenses by Number of Months
Before calculating total emergency funds, you need to know the number of months as an emergency fund target first. Here is the emergency fund target for each individual according to the dependent status they have. We recommend emergency funds of 3-12 times monthly expenses, depending on marital status and number of dependents, to maintain financial stability.
- Not married: 3-6 months of expenses
- Married: 9 months of expenses
- Married and have children: 12 months of expenses
After you know the target number of months, you can calculate emergency funds by multiplying total monthly expenses by the targeted number of months.
Prepare Emergency Funds by Saving at BTN
After knowing how important it is to prepare emergency funds for the future, now it's time for you to start preparing them. Emergency funds can be prepared at any time, the sooner they are prepared the better.
As explained above, savings accounts are one of the right financial products to place emergency funds. For that, BTN can be the right solution as a place for you to collect emergency funds.
BTN provides savings products suitable for those of you who want to save emergency funds, one of which is BTN Siap. With BTN Siap, you can adjust savings to your needs with a period of time you can choose, starting from 1 to 15 years. In addition, you can make regular deposits with only a minimum of Rp100 thousand to open BTN Siap Savings. As an addition, BTN Siap Savings also provides free insurance benefits, where customers will get accident insurance protection with free premium costs automatically.
So, what are you waiting for? Immediately start preparing ideal emergency funds with BTN to anticipate things that may happen in the future. Click this link to find out more about BTN savings products.
