Building an Emergency Fund in Switzerland: Why, What, and How
As a prudent investor, you might have already established a lifetime investment plan, making regular contributions deployed across a well-diversified portfolio of real estate, debt, and equity assets for better risk-adjusted returns. With these prudent measures in place, it’s easy, and even somewhat reasonable, for one to assume that their financial future is secure and free from financial worries.
That said, there remains a chance – however miserable it may be – that an unforeseen moment of chaos and fear, triggering a seemingly trivial oversight by you or a family member, could lead to a large part of your home being consumed by fire. Of course, being a wise householder, the structure and contents of your home are fully insured, including furniture, clothing, artwork, and all of the other accouterments of family life.
Even so, however, pending your claim on the insurers, you are still liable for the possibly very significant expense of hiring a contractor to secure your semi-destroyed house against the continuing risk of injury to others from, for example, loose timbers, crumbling masonry, or electrical faults.
On a more personal note, you may urgently need to find and pay for alternative accommodation for you and the family, buy new clothing and other necessities to replace those damaged in the conflagration, or even rent the car if yours was damaged in the chaos.
Altogether, even if expenses will, in due course, be recovered under the terms of your insurance policy at some point, you could have an immediate need for tens of thousands of francs. Will the damage be refunded in full? The honest answer is: Maybe. Getting insurance companies to settle a claim can be very complicated, not to mention that it can take much longer than expected.
None of this should sound too upsetting if you have had enough foresight to establish a personal emergency fund – a sum of money, distinct from your regular savings, set aside specifically for the kind of rainy day described
How Big Should Your Emergency Fund Be?
In the past, having a fund equal to 3 to 6 months of your salary was considered adequate. A century ago, when lifetime employment was a lot more common, this made sense. In today’s world, things are different. Indeed, people tend to change employers more readily and, as a result, employers have become more aggressive with the management of their human resources.
This is especially true in the field of financial services, which employs a large number of Swiss individuals. Banks are merging, big wealth managers are acquiring smaller competitors, and foreign behemoths are constantly trying to buy a bigger slice of our domestic cake. Any of these events can result in staff redundancies and other unexpected employment upheavals, which employees have no control over.
All of the foregoing suggests that your emergency fund should be the equivalent of at least 6+ months’ salary. Should another pandemic strike, which later caused a COVID-19 crisis in 2020, many could all be locked down again for many months, potentially experiencing a significant loss of income. The same could be said of the effects of any major international financial or economic crisis. The last one was in 2022, following the Russian invasion of Ukraine. Roughly speaking, such setbacks seem to occur every ten years or so, but they can conceivably happen more frequently.
The crisis timeline below only covers the US. However, there’s an old saying that, “when Wall Street sneezes, the world catches a cold.” This adage holds true and will likely continue to do so for as long as the US dollar remains dominant as the currency of choice for international transactions.
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The financial and employment upheaval caused by the 2020 pandemic, as well as the 2022 explosion in interest and inflation rates, persisted for at least a year. With this in mind, even though the target may not be achievable immediately, the most sensible thing to do would be to aim to set aside a sum equivalent to up to 12 months' worth of salary.
Read the full article on our website to find out how to establish a personal emergency fund in Switzerland.
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