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Emergency Fund vs. Investing: Which Should Come First?

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Emergency Fund vs. Investing: Which Should Come First?

Simplify your financial journey by learning why an emergency fund is essential before you dive into investing.

emergency fund vs investing

Why 90% of Indonesians Don’t Have an Emergency Fund

According to surveys, nine out of ten Indonesians live without an emergency fund. Many people don’t prepare it simply because they don’t know what it is or why it matters. Yet, when unexpected crises such as the 2020 pandemic strike, an emergency fund can mean survival.

What Exactly Is an Emergency Fund?

An emergency fund is money set aside specifically for unexpected events—job loss, illness, accidents, or sudden expenses. Unlike regular savings, it is not for vacations or planned purchases. It is a safety net designed to give you financial breathing space.

How Much Should You Save?

A simple formula is: monthly expenses × 3. For example, if your monthly cost of living is IDR 3 million, aim for at least IDR 9 million. Three months is the minimum, but six months or more provides stronger protection.

Emergency Fund vs. Regular Savings

While both can be withdrawn anytime, the key difference is purpose. Regular savings might fund lifestyle needs, while an emergency fund exists solely for urgent, unpleasant events. This clear separation prevents financial chaos when life surprises you.

Where Should You Keep Your Emergency Fund?

Two main principles guide where to store your emergency fund:

  • Liquidity: Easily accessible in times of need.
  • Stability: Safe from high market volatility.

Option 1: Bank Account

Storing 100% in a bank account ensures quick access and zero market risk. However, the downside is your money earns little to no growth.

Option 2: Split Between Bank & Money Market Funds (RDPU)

A balanced approach is keeping 50% in your bank account and 50% in Money Market Mutual Funds (RDPU). These funds are:

  • Low-risk
  • Highly liquid (withdrawable within days)
  • Offer around 5% annual returns

This way, your emergency money is not only safe but also grows over time instead of sitting idle in a bank.

Understanding Money Market Funds (RDPU)

Think of RDPU as lending money for short terms (less than one year) to banks, companies, or the government. A fund manager acts like a “Benny,” who collects investors’ money and lends it out safely, generating small but steady returns.

“In the long run, an emergency fund is not about making you rich—it’s about keeping you from falling into financial disaster.”

How to Start Building Your Emergency Fund

  • Set a target: 3–6 months of living expenses
  • Save 5–10% of your income monthly
  • Use tools like Bibit to invest in RDPU
  • Automate contributions with features like auto-debit

Related Reading

Already secured your emergency fund and ready to take the next step? Learn more about where to buy stocks safely as a beginner.

Final Thoughts

Before thinking about buying stocks or chasing investment returns, secure your financial foundation with an emergency fund. This habit ensures you can face sudden challenges without debt or panic. Once your safety net is ready, you can confidently step into investing.

Do you already have an emergency fund, or are you just starting to build one? Share your journey in the comments and inspire others to take their first step!

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