Build an emergency fund of 3 to 6 months of living expenses first, and keep it where you can withdraw it at any time
- High value
- Evidence C
- Saves money
- Free
- Takes minutes
- Some willpower
In plain words
Keep 3 to 6 months of living expenses in a place you can take it out at any time. Then when you lose your job or get sick, you don't have to borrow at 18% a year, and you don't have to sell your investments at a loss. Money in a bank is covered by deposit insurance, up to 500,000 (50万) CNY at the same bank.
- Cost
-
Free. The price is that this money gives up higher returns, and can only sit in a demand deposit, a money market fund, or a deposit you can withdraw at any time. The hard part is not touching it while you save.
- What you get
-
With an emergency fund, when you lose your job or get sick you don't have to borrow, and you don't have to sell investments at a loss. For the annualized rates on consumer loans and on credit card minimum payments, see §5.7 (don't make only the minimum credit card payment). Money in a bank is protected by deposit insurance, with a maximum payout of 500,000 (50万) CNY at the same bank (China, 2015)
- Notes
-
"3 to 6 months" is a widely shared rule of thumb. No official or academic original source was found, so it is marked C. Base the amount on your own fixed monthly spending, not on your income. This is not investment advice.
- Evidence grade
- C : The author's experience or common practice, without direct literature.
- Sources
-
- 国务院 (2015). 存款保险条例（国务院令第 660 号，第五条）. https://www.gov.cn/zhengce/content/2015-03/31/content_9562.htm
Mentioned in
- If you pay individual income tax at a rate of 10% or higher, open a personal pension account (个人养老金账户), where up to 12000 CNY a year can be deducted before tax; it is not worth it if you pay no income tax or your rate is only 3%
- Buy insurance only for losses you can't bear yourself, and cover losses you can bear with your emergency fund
- Don't skip saving just because “people can die at any time, so it's happier to spend the money early”; about 90% of 30-year-olds live to 60
Translated from the Chinese original. Original book, section 5, tip 27. This section is about money and spending. It is general information, not financial or investment advice. Content may be out of date and rules differ by place. When you actually deal with an agency, a doctor or a court, follow what local officials, doctors and lawyers tell you. Disclaimer