Emergency Fund: Your Ultimate Guide


Imagine this scenario:

One night, while you were sleeping sound, your phone rang. You stretched your right arm, trying to find where the noise is coming from. When you answered the phone, you heard your mom on the other side, she said, “Your dad is in the hospital, your car crashed.”.

Out of nowhere, you jumped straight out of your bed. Fixed yourself and went straight to the hospital.

In the hospital, you saw your mom, and she said, “Your dad miraculously survived the accident with just few scratches. But, your car is in a terrible condition.”

That is a COMPANY CAR that was assigned to you and will be yours after 5 years of service in the company. OH NO!

The insurance company agreed to cover 50% of the repair expenses (thank God!), but you need to pay the other half to fix your car.

Where on earth are you going to get that fund to fix your car if you do not have an emergency fund?

That is the good thing about having an emergency fund. In case accidents or emergencies like these happens, you can use the money you tucked away for these types of unexpected expenses.

Why do I need an Emergency Fund?

Unplanned or unexpected events may happen anytime, and that is one reason most Filipinos are drowned with loans. Instead of building an emergency fund, we apply for an emergency loan. Brilliant! You can spend all the money you have, and when an emergency arise, just go find a loan shark who will lend you money to cover the cost of your emergency.

But, NO. That is a big NO! NO!

Getting an emergency loan will only force you to pay more than what you really need. It may be helpful in the beginning, but it will definitely hurt your budget in the long run. Then your family will suffer because you will have to adjust your budget to pay for the loan (Ehem! with high interest rate).

Having an emergency fund set aside will give you security and peace of mind, plus there’s no need to borrow money in case of crisis. Isn’t that great?

Here, let me enumerate to you events that you may consider as an emergency to use your savings.

Uses of an Emergency Fund

  • Hospitalization
  • Natural Calamities
  • Job loss
  • Unexpected home and car repair

I hope we’re clear on that. The list DOES NOT INCLUDE those instances that you crave for burger or pizza ^_^. But, if you insist, you have to save in this type of emergency separate.

How much money should I save?

Financial experts usually advise to save at least 3 to 6 months of your monthly expenses to be saved as your emergency fund.

If your household monthly expenses is Php30,000, then you should save at least Php90,000 to Php180,000 in a separate bank account to serve as your emergency fund.

5 Steps to build your Emergency Fund

1. Take your time

Though we understand you need this in case of emergency, it doesn’t mean that you should immediately fund your account with 3 to 6 months equivalent of your monthly expenses. Go take your time, but, please don’t make it forever.

Budget your money and set your target date. Having no target date will only awaken your mañana habit and you will never save even a single peso.

2. Define your emergencies

This is very important. You should only use your emergency fund in the event that your current income can not suffice the cost of an emergency.

Please have enough discipline to only identify qualified events, such as, job loss, hospitalization, home/car repair and natural calamities.

Doing this will help you control your spending and have enough savings to cover any unexpected expenses.

3. Open a Separate Account and Automate your savings

“Out of your sight, out of your mind”

As simple as that. If you do not see someone or something frequently, you will forget about it. Open a new account for your emergency fund, then automate your savings and forget that you have it so you will not be tempted to use it.

Several banks have this feature, where you can automatically transfer funds from your payroll account to your savings account.

Go visit your bank and ask assistance to open a new account and automate the savings ^_^ .

4. Add another source of income

There’s no better way to quickly save for your emergency fund than to add another sources of income. I recommend the 4 side hustles I did to earn additional income as it is really effective.

Related post: 4 Best Ways How to Earn Extra Money

Dedicate all the income you will earn from your side hustle to your emergency fund. This way, you will not be tempted to slash your piggy bank’s neck  and get some cash until you exhaust everything you saved.

5. Be Consistent

The key to be successful in everything you do is consistency.

Ningas Cogon” – it refers to the Filipino cultural trait of enthusiastically starting things, but then quickly losing enthusiasm soon after.

Oh yes, we know that. This is one of the Filipino traits we should dispel. In contrast, we should start practicing consistency right away!

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