In a year where the only constant has been the unpredictability of day-to-day life, more individuals are re-looking their money management goals and prioritising their emergency fund.
As a rule of thumb, an emergency stash (usually 6 to 9 months of monthly expenditure) is a fundamental building block of any personal finance plan. Aside from the safety net it provides - should there be a temporary loss of job, or reduction of income - it also ensures unforeseen expenses (e.g. schooling, medical, household) can be catered for without any additional stress or incurring expensive credit card debt. For some, it’s an additional investment strategy – having funds set aside allows them to take advantage of financial opportunities as and when they become available.
This year’s GoBear Financial Health Index gathered personal finance insights from over 1,000 Singaporeans and a key finding observed is the increasing number of individuals saving for emergencies.
More Singaporeans are creating or growing emergency funds
For many who’ve never been through a recession, or even contemplated being made redundant, 2020’s economic downturn has been a rude awakening. Where excess funds were previously put aside for retirement or overseas trips, 59% of individuals are reportedly devoting savings towards an emergency fund, an increase of 4% from a year before. Correspondingly, there’s been a 3% decrease (from 62% to 59%) of individuals saving less for their retirement as the focus turns to address short term priorities. In short, the ongoing global economic downturn has been a catalyst for many Singaporeans to prioritise planning for the near and immediate future, if they’d not already done so.
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While Singapore is in Stage 3 of its re-opening, the country remains a long way off from pre-Covid times, even as rules around social gatherings have relaxed and international travel has begun to open to international travellers from New Zealand, Hong Kong, China and Japan.
The economy is expected to contract by 5.8% as it braces for its worst recession ever with growth estimates slashed down from -4% to -7%. These sobering numbers are already felt in the job market. Locally, retrenchments have risen from 2,670 to 3,220 in the first quarter of 2020, and an additional 4,190 employees have been placed on shorter work hours (and therefore taking home less income), a five-fold increase from the previous quarter where only 840 individuals were affected.
Adjusting spending habits to combat financial insecurity
Where financial stability was once almost a given so long as one remained gainfully employed, today’s unstable uncertain economic conditions present no guarantees, and many feel their cost of living is outpacing earnings. As a result, people are adjusting down their spending habits. 53% of individuals surveyed are reportedly dipping into their emergency savings, and 19% - an increase from 11% in 2019 - are turning to government subsidies to provide needed financial assistance. Some others are taking a pro-active approach and preemptively trimming spending (47% versus 54% the previous year) as a means to combat the financial insecurity caused by the ongoing pandemic.
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Ongoing concerns over income and job stability were also sentiments expressed by 55% of the individuals asked, retrenchment being the chief worry (46% of respondents) as an interruption of monthly income would disrupt any retirement plans regardless of the state of the economy.
While there’s optimistic news surrounding the development of an effective vaccine, for now, the world will remain in limbo. For many, this means taking a cautious approach towards personal investments and being able to respond to unexpected emergencies quickly.