Why you need an emergency fund
An emergency fund has one job: when unemployment, illness, a car accident, a broken appliance, or a family emergency hits, you don't have to tap your long-term investments.
What happens if you don't have one?
- Forced to sell stocks in a downturn, locking in losses
- Leaning on credit cards or personal loans (8–20% annualized), falling into debt
- High psychological stress, straining work and relationships
- Long-term retirement planning gets derailed
So having an emergency fund is what lets you invest with peace of mind. This is the first item in most retirement-planning literature.
How much to save
The mainstream suggestion is 3–12 months of living expenses. Adjust based on:
Income stability
| Occupation type | Suggested months |
|---|---|
| Civil servants, large-company employees, tenured faculty | 3–6 months |
| General salaried employees, SME workers | 6 months |
| Self-employed, freelancers, commission-based sales | 12 months |
Logic: the higher the unemployment risk and the harder it is to find the next job quickly, the larger the buffer.
Family responsibilities
- Single: baseline months above
- Married, both earning: baseline months above
- Married with a non-earning spouse / dependent children / supporting parents: +2 months
Insurance coverage
- Has medical insurance (reimbursement-type): baseline months above
- No medical insurance: +1 month (you cover hospital costs yourself)
The site's Emergency Fund Calculator uses this logic to suggest a target amount.
Common misconceptions
Myth 1: "Emergency funds should earn high interest"
Wrong. The point of an emergency fund is liquidity, not return. Park it in:
- Demand deposits, high-yield digital-bank demand accounts (1–2%, most convenient)
- Short-term time deposits (7-day / 1-month, early-break penalty is minimal)
- Money-market funds (T+1 redemption)
Don't put it in:
- Stocks or ETFs (selling in a downturn locks in losses)
- Investment-linked insurance policies (high surrender fees)
- Long-term time deposits (lose interest on early break)
- US dollar / foreign currency (FX timing and cost uncertain)
Giving up 1–2% of potential yield in exchange for being able to access the money instantly is a very good trade.
Myth 2: "My credit card has a NT$1M limit, I don't need an emergency fund"
Wrong. Credit-card revolving interest is 8–20% annualized, and emergency use can snowball into debt fast. On top of that, a card issuer can lower your limit or freeze the card if you lose your job.
Myth 3: "I can always borrow from family"
Unreliable. Family members can hit trouble at the same time you do (a recession hits everyone). Borrowing also strains relationships and shouldn't be built into a plan.
Myth 4: "My investment returns are good — I'll just sell if I need cash"
Unreliable. Emergencies often coincide with bad markets (layoffs usually come with stock-market drops). Selling stocks then is a double loss.
The order of operations
A sensible order for building finances:
- First: save 1 month of expenses (100% accessible)
- Second: top it up to 3 months of expenses
- Third: reach the suggested total (per the table above)
- Fourth: only then channel surplus into long-term investments
Many people skip the emergency fund to rush into investing and get burned when an emergency hits. Going step-by-step is more stable.
When you can reduce the emergency fund
Once certain conditions are met, you can lower the emergency-fund target:
- Already retired (stable pension income): 6 months is enough
- Spouse has stable high income: can drop from 12 to 6 months
- Very large accumulated assets (e.g. 90%+ of retirement target hit): can use investments as a backstop
But never go below 3 months. That's the floor.
Taiwan-specific considerations
1. Rent vs mortgage
Mortgage-holders should include "monthly mortgage payment" in monthly expenses. You still have to pay the mortgage if you lose your job — it can't be cut. Renters can move to reduce expenses after job loss, giving monthly costs more flexibility.
2. Elder-care medical expenses
If elderly family members are likely to need medical care (e.g. parents over 75), adding another 3–6 months specifically earmarked for unexpected medical costs is reasonable.
3. National Health Insurance premiums
After retirement, National Health Insurance (健保) premiums still have to be paid (roughly NT$800–2,000/month). Factor this into a long-horizon emergency fund.
Using the tool
The site's Emergency Fund Calculator computes suggested months and amount based on your income stability, family situation, and insurance coverage, and compares it against your current savings.