Why your family needs a Financial Fire Drill

In Singapore, most households today depend on dual incomes. Between mortgage repayments, car instalments, childcare fees, enrichment classes, insurance premiums, and rising food costs, life here can get expensive.

But what happens if suddenly one income disappears?

A retrenchment, a long illness, or even a simple industry downturn can cut a family’s monthly income by more than half overnight.

That is why every family should run a Financial Fire Drill: a simple exercise to prepare for “what if” scenarios.

What a Financial Fire Drill looks like

A fire drill is about knowing the steps before the crisis hits. Here is how Singapore families might run one on their own:

1. Simulate income loss

• For one month, live only on one spouse’s income. Track carefully:
• Which bills can still be paid comfortably?
• Can you still cover fixed costs (housing, insurance, childcare)?
• How much lifestyle trimming is required (dining, Grab rides, travel, subscriptions)?
• Which lifestyle expenses become impossible?
• How quickly would savings be depleted?

This test often reveals just how fragile dual-income dependence can be.

2. Audit emergency buffers

It is generally recommended to keep 6 to 12 months of expenses in cash reserves. But here is the kicker: “expenses” should mean essential expenses only like housing, food, utilities, insurance, childcare and not restaurant dining or holidays.

Questions to ask yourselves include:

• Do you have 6 to 12 months’ worth of expenses in emergency savings?
• Can you tap into your investments in a pinch?
• Is there a family fallback – e.g. temporarily moving in with parents to save on costs?

3. Check safety nets

Financial problems often accumulate. Losing one income may be devastating but imagine if a medical emergency happens soon after.

That is why you should review your safety nets by asking:

• Will the retrenched spouse lose company medical benefits immediately? (Most do.)
• Is there an income protection policy? These pay out a portion of income if you are unable to work due to illness or accident, but they must be bought before the crisis.
• Do both spouses have sufficient critical illness coverage, so job loss due to health reasons will not derail finances permanently?

4. Prioritise what to cut first

This is where a drill gets practical. Families should list non-negotiables (mortgage, childcare, insurance premiums) vs first-to-cut (extra enrichment classes, private car ownership, gym memberships, multiple streaming services).

For example:

• Must: mortgage, utilities, school fees, insurance premiums.
• Nice-to-have: 3 streaming subscriptions, expensive enrichment classes, gym memberships, dining out thrice a week.

Running this drill shows you exactly where you would trim if needed.

A Singapore example

Imagine a dual-income couple, both earning about S$5,000/month. Their monthly commitments:

• HDB loan: S$2,000
• Childcare: S$1,200
• Insurance premiums: S$900
• Groceries & food: S$1,800
• Transport & car loan: S$1,000
• Misc (subscriptions, holidays, shopping): S$1,100

Total: S$8,000

If one spouse loses his/her job, the family goes from S$10,000 to S$5,000 income overnight. Their fixed expenses (S$6,000+) exceed what is left. Without an emergency fund or quick adjustments, they would be forced into debt within a month.

But if they had done a financial fire drill earlier, they might have realised:

• They can downgrade from car ownership to public transport (saving ~S$800).
• One holiday cut saves S$5,000 in a year.
• Subscriptions and dining cuts free another ~S$500 monthly.
• An emergency fund of S$30,000 gives them six months of breathing space.

Instead of panic, the family has a plan.

Why this exercise matters

By running a financial fire drill once a year, families get three major benefits:

• Awareness: You see clearly how dependent your household is on dual incomes.
• Preparedness: You know exactly which expenses to cut first.
• Peace of mind: You stop fearing the “what if” because you have already mapped it out.

How to start yours tonight

It does not need to be complicated:

• Have a family meeting: Sit down with your spouse, list all income and expenses.
• Play out the scenario: “What if you lost your job tomorrow?”
• Write down your first 3 actions: E.g. tap savings, cut transport, suspend enrichment.
• Review annually: Situations change, especially as kids grow and mortgages shrink.

Think of it as a one-hour conversation that could save your family from six months of sleepless nights in a crisis.