Why Is an Emergency Fund Often Overlooked?

Many people still underestimate the importance of having a financial safety net. Common reasons include limited income or the belief that such a fund isn’t yet necessary. However, real-world data shows otherwise:

A survey found that the average household in Indonesia has an emergency fund equivalent to less than three months of expenses—well below the minimum recommendations set by OJK (Indonesia's Financial Services Authority) and financial experts.

According to a 2022 report by John Hancock, 33% of employees worry about not having enough funds for urgent needs, while 19% have had to dip into their savings just to cover daily expenses.

A lack of emergency savings often leads individuals into financial stress, forcing them to rely on debt when unexpected crises arise.

Common Mistake: Not Knowing How Much Is Needed

Many people assume that an emergency fund of Rp5–10 million is sufficient. However, based on standard financial planning guidelines:

• Single individuals should save 3–6 times their monthly expenses.

• Couples without children are advised to set aside 6–9 times their monthly expenses.

• Couples with children should ideally save 9–12 times their monthly needs.

Example:
If monthly expenses total Rp4 million:

• A single individual needs Rp12–24 million.

• A couple without children: Rp24–36 million.

• A couple with children: Rp36–48 million.

Systematic Steps to Build an Emergency Fund

Here are practical strategies to gradually and effectively establish your emergency savings:

1. Identify and Record Monthly Expenses

Track all recurring expenses, including rent, utilities, transportation, loan repayments, groceries, and medical costs. Use bank statements or financial apps for accurate tracking.

2. Set a Target Based on Your Personal Situation

Determine your savings goal based on your status—single, married, or with dependents—using the guideline of 3 to 12 times your monthly spending.

3. Allocate Income Consistently

Set aside 10–20% of your monthly income for emergency savings. Use an automatic transfer system to direct funds into a dedicated account, ensuring consistent contributions without interruption.

4. Store Funds in Safe, Accessible Instruments

Combine traditional savings accounts with liquid instruments like money market mutual funds. Both options offer safety, low risk of fluctuation, and easy access when needed.

5. Review Periodically

Every 3 to 6 months, reassess your expenses, family status, and financial goals. Adjust your emergency fund target accordingly to ensure continued relevance.

More Than a Backup—They’re Financial Protection

Financial unpreparedness during emergencies often stems not from low income but from poor planning. An emergency fund is not merely a cushion during crises—it is a foundational tool for building a resilient and healthy financial future.

With discipline and the right strategy, individuals can face life’s uncertainties with confidence—without falling into debt traps or sacrificing other essential needs.