Saving money for travel goals sounds a lot more fun than saving money for an emergency fund. If you feel the same way, better think again. In this post, I will show you that building emergency fund is not something optional but a must-have.
This post is a part of this site’s financial literacy campaign.
I won’t be talking here jargons because that’s what many Filipinos are scared about. Yes, I hate jargons too (though I’m not scared of them LOL).
I always want to keep things in simple and in plain terms to serve more readers of different intellectual capacity. Let’s get started!
First, you need to understand..
What is an Emergency Fund?
Basically, an emergency fund is money that is set aside to cover unforeseen life events. It is a fund that is readily available in times of unexpected expenses. It’s as simple as that.
We need to accept the fact that even if we are planning our expenses properly, there are things we do not know and things that out of our control. We need to do something ahead of time for us to handle unexpected financial problems.
With emergency funds, you are saving for major events such as:
- Losing your job
- You get inflicted with a serious disease
- One of your family member is in an emergency situation
- Natural calamities
These situations are also the common reasons why people get into debt. Having an emergency fund is a way for us to get out of debts with high interest rates. If you don’t want this to happen to you, better start saving for your emergency fund today.
Now you might want to ask..
How much money should I keep for my emergency fund?
There’s no exact answer to this one. But the common practice is to save around 3-6 months of your average monthly expenses.
If you’re single, savings for 3 months usually is enough. However, if you’re married or you’ve got a lot of people depending on you, you might need to save for 6 months or more.
Back from the time I decided to do freelancing, I saved 4 months worth of money to cover for my regular expenses. Luckily, I landed my first freelancing gig on the second month after I resigned.
During the time you’re using your emergency fund, as much as possible, keep your expenses at bare minimum. You need to remove all unnecessary purchases and expenditures. Stretch every money you have so you can survive for longer time period.
Basically, you just need to ask yourself how long will it take for you to get a new job or business. Is it 3 months, 6 months, one year, or more? It’s all up to you.
The important thing is you are following a plan. It can be short-term or long-term. You just need to make sure that you can get another source of income before the your emergency fund gets depleted.
Now the next question would be..
How can I start building my emergency fund?
1. Create a budget plan. You need to see every peso that is going in and out of your pocket. This way you’ll be able to set a realistic figure on how much you will save every month.
2. Decide where to keep the money. It’s up to you whether to save your money inside your home or in an ATM bank account. The thing is it should be accessible the time you needed it.
If you’ll ask me, I will save some reasonable amount of money in my house and put the rest of the savings in the bank.
Opening up a bank account is a lot easier now, you can start even with just P200 initial bank deposit and requires no maintaining balance. You may want to try BPI’s Kaya Savings Account.
3. Don’t ever touch it for other reasons. Always stick to your plan. It takes discipline to do this. You need to meditate that you are saving this money to be spend only in times of troubles.
Emergency fund is not something complex. It’s really as simple as ABC. All you need is a little discipline to save the money. That’s it!
Here’s another tip..
If you’re not earning that much and nothing is left in your budget after spending for your necessities, here are some things you can do:
Eat healthy, Remove Vices, Clean Your Surroundings, and etc – If you are expecting your savings to be spend on some health issues, then why not reduce the risk ahead of time?
You can always prevent health issues by eating healthy foods and cutting vices. This way, There will be less chance for you to spend your money on the hospital bills.
Learn marketable skills and get side job/business. To reduce the risk of having no sources of income when you got laid off is to get a side job or side business ahead of time.
You can always start small. You might not know, your side business will be you main source of income in the future. I did blogging back then as a side business and now I’m earning full time passive income from it.
Again before saving for some other things, I strongly suggest to build your emergency fund first.
If you think other people will benefit from this, please help me share the love. 🙂
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