2. Emergency Funds

Everyone should have an emergency fund to cover their expenses – “it’s one of the most fundamental rules of personal finance” (Little, 2021). However, the exact amount can vary between individuals. Time Magazine’s interview of 11 financial experts yielded 11 different answers, who noted that “the amount of money you should have in an emergency fund is something only you can decide, because it’s got to be based on your own situation and what makes you feel secure” (Little, 2021).

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How much money should your emergency fund carry? Recommendations can range between a month to a year of expenses. These estimates are based on different calculations – for example, one expert recommended having between six to nine months of expenses in an emergency fund, because “in the last recession, at peak unemployment, it took an individual about eight months, on average, to find a new job” (Little, 2021) How much money would you feel comfortable having in your emergency fund?

Do you know anyone who is approaching retirement age? Anyone about to retire should consider having a “three-year cushion in cash” – enough money to cover three years of expenses. Financial analyst Suze Orman, host of CNBC’s Suze Orman Show, noted that a bear market usually takes 3.1 years to return to its original levels, so a retiree would be able to cover their expenses and wait for their portfolio to recover in three years, rather than sell their assets at a loss in order to cover their expenses (Little, 2021). To learn more about bear markets and managing money during pandemic or recession, visit our next page

3. Risk Awareness and Decreasing Your Vulnerability

Financial Product Investment: Each financial product that you would invest in comes with a risk. When investing in financial product you can gain but also lose money. Therefore, you should always fully understand the product in which you are investing in (stock, bond, investment fund). This also applies to when you are using a credit card or want to invest in an insurance (for example life insurance). In the case of a credit card, which often used to borrow money; you should first ask yourself why you would need to borrow and for what. How much do you need to borrow, and do you understand the risks associated with taking out a loan? Will you be able to pay back the money borrowed, taking into account the interest? Asking yourself all of these questions will help realise your current level of risk exposure.

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Risk Tolerance: As your age and income changes, you may find that your risk appetite changes as well. In Hong Kong and in many countries, banks provide Risk Tolerance calculators or questionnaires. The IFEC provides different risk categories below. 

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4. Developing Financial Goals

Each person's life situation is different. Your bank should have retirement calculators online; the Investor and Financial Education Council also hosts a retirement calculator tool below to help you create personalized goals.

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If you'd like some exact numbers to help you set benchmarks, Hong Kong's Fidelity Investment Retirement Fund has calculated general rules of thumb based on "an annual savings rate, savings milestones (savings factors), an income replacement rate, and a probable sustainable withdrawal rate" (FIL Limited, 2021). They recommend the following financial goals:

• By age 30: save 2x your current annual income

• By age 40: save 5x your current annual income

• By age 50: save 8x your current annual income

• By age 60: save 11x your current annual income

• By age 65: save 12x your current annual income

To read the full analysis and view how MPF and ORSO factor into the calculation, see Fidelity's article below.

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Fidelity provides other benchmarks for Americans below, and recommends saving 15% of your income.

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