Emergency Fund Key To Personal, Household Financial Health
As the new year begins, many people take the opportunity to reassess their financial standing, reorganise their budgets and set resolutions aimed at achieving better financial health throughout the year.
However, for most families, budgeting often remains little more than a plan on paper when the realities of life set in and financial commitments continue to rise, especially for households with young or school-going children, putting more strain on their cash flow.
This situation has also resulted in many people having no savings, even for emergencies, exposing them to the risk of falling into more serious financial distress.
According to budgeting coach Nafisah Amran, such circumstances underscore the importance of having a proper budget to prevent individuals and families from getting trapped in a cycle of “robbing Peter to pay Paul”.
“Financial strength does not lie in complicated formulas. It begins by returning to the basic principles of managing one’s income,” she said in an interview here recently.
She shared with Bernama practical tips on how Malaysians can align their money with their life goals, build an emergency fund and break the cycle of debt year after year.
FINANCIAL BASICS
Nafisah said the most fundamental principle of budgeting is ensuring that monthly income is not fully spent and a portion is set aside for savings and future needs.
According to her, currently, many Malaysians still lack even basic savings, including an emergency fund, making their finances fragile when faced with unexpected shocks.
“At the very least, we need to have an emergency fund. What we learned from COVID-19 was that people suddenly lost jobs or had their salaries cut. That was when we truly saw how critical an emergency fund is,” she said.
The Financial Capability and Inclusion Demand Side Survey by Bank Negara Malaysia (BNM) in 2024 found that 61 percent of Malaysians struggled to come up with RM1,000 for emergencies, a sharp increase from 47 percent in 2021.
Elaborating, Nafisah said one reason many people fail to build savings is the growing reliance on ‘buy now, pay later’ (BNPL) facilities, as well as small loans taken little by little, even though the monthly repayments may appear small.
Data from BNM showed that BNPL transaction values surged to RM7.1 billion in the second half of 2024, compared with RM4.9 billion in the first half of the same year, while the number of active users reached 5.1 million by year-end.
The growth trend continued into 2025, with BNPL transaction values rising to about RM9.3 billion involving more than 102 million transactions in the first six months alone, and active accounts increasing to around 6.5 million.
The majority of users were aged between 21 and 45 and came from the middle-income group, making BNPL one of the fastest-growing forms of short-term credit in the country.
Media reports also indicated that as of mid-2025, nearly 169,000 accounts, or 2.6 percent of BNPL users, had outstanding balances totalling about RM121.8 million.
EMERGENCY SAVINGS A NECESSITY
In light of rising living costs and uncertain income prospects, Nafisah said building an emergency fund is no longer optional but a basic necessity to safeguard household financial stability.
Contrary to popular belief, she said an emergency fund does not have to begin with an ambitious target such as having savings equivalent to six months’ worth of expenses, which often discourages people from starting in the first place.
Instead, she advocated starting with a small emergency fund and building it up gradually through consistent contributions, stressing that the fund’s purpose is to act as a buffer against unexpected events such as loss of income, illness, home or vehicle repairs, or urgent outstanding payments.
She also dismissed the perception that an emergency fund should be calculated based on salary size, with higher earners needing to save more.
“The house instalment or rent, basic food, transportation including fuel and tolls, and utility bills… these are the essential expenses. If the total comes to RM5,000 a month, then the emergency fund should be calculated based on that figure, not the salary,” she explained.
50:30:20 FORMULA NOT ABSOLUTE
Commenting on the popular 50:30:20 budgeting method, Nafisah said it can serve as a useful starting guide but should not be treated as an absolute benchmark.
She observed that many people fail to stick to a budget because they are overly fixated on saving 20 percent of their income, when in reality they may only be able to save five to 10 percent at the beginning.
“Don’t give up just because you can’t hit the 20 percent target. Start with what you can afford. From there, identify leakages and gradually increase your savings,” she said.
The 50:30:20 ratio is a simple method of managing monthly finances by dividing income into three main categories: needs, wants and savings.
Under this approach, 50 percent of the income is allocated to basic necessities such as rent or housing loan instalments, utilities, food, transportation, insurance and compulsory loan repayments. These are prioritised as they are essential to daily living.
The approach also suggests setting aside 30 percent for wants or lifestyle spending, including dining out, entertainment, shopping, digital subscriptions and holidays. This portion is flexible and can be reduced when one needs to cut back or boost savings. The final 20 percent is earmarked for savings and investments, such as emergency funds, fixed deposits, long-term investments or additional debt repayments.
The core principle of this ratio is to prioritise savings to ensure greater financial stability in the long run.
ALIGNING MONEY WITH LIFE GOALS
For Nafisah, savings will not be sustainable without a clear purpose. She stressed that money must be aligned with life goals, rather than being spent as soon as salaries are received.
“If you’re single, maybe your goal is to travel. If you have children, you look at where they will be in three or five years. Once you see the phases of life, you know when the money will be needed,” she said.
This approach, she added, helps individuals view their finances over the medium and long term, instead of living from one paycheck to the next.
Nafisah also pointed out that many families do not necessarily have problems in terms of their monthly incomes, but are affected by large expenses that come one after another each year, such as during the school opening season, Ramadan and Hari Raya Aidilfitri, as well as when they have to pay for insurance renewals and road tax.
Without early planning, monthly salaries end up being used to cover expenses that should have been anticipated.
As such, she recommends setting up a sinking fund or special savings for seasonal expenses by saving small amounts consistently throughout the year.
“Try doing a sinking fund for just one year. When the festive season arrives, you use that fund instead of your salary. That’s how you break the cycle,” she said.
She said this approach eases pressure on cash flow and prevents the financial strain from lingering for months after the festive period.
GOVT AID NOT LONG-TERM SOLUTION
On government assistance to low-income groups, Nafisah said such aid can be used according to its intended purpose, but people should not rely on it as it is not guaranteed or permanent.
“If assistance comes in, you can use it to top up festive spending so it doesn’t disrupt your salary. The salary should go into savings… that’s what matters,” she reiterated.
She also encouraged the habit of tracking expenses, describing it as a key pillar of financial discipline.
This practice helps individuals identify spending leakages and correct their cash flow each month.
“If you go off track, you can always turn back. Don’t wait until next year. Every time your salary comes in, you can make improvements,” she said.
Touching on the second phase of salary adjustments for civil servants, Nafisah advised that any increase in basic pay should ideally be channelled into investments or used to build an emergency fund for those who have yet to do so.
“For those with arrears, settle those first. Once things are stable, then upgrade to savings and investments. Don’t immediately upgrade your lifestyle,” she cautioned.
Nafisah emphasised that financial change does not require drastic action all at once, but begins with the courage to make small, consistent changes.
“Once the (unhealthy) spending cycle is broken, the impact is not only felt in the short term but also creates room for better retirement planning and the well-being of future generations.
“Break the cycle once, and the snowball effect is huge. We’re not just fixing our own finances but also reducing the burden on the next generation,” she said.
