You never know when an emergency strike, so be prepared, build an emergency fund.
Last year, a family member was hospitalized and admitted in ICU. With no HMO or medical insurance, we have to pay for everything out of our own pocket. Good thing we have a ready emergency fund that was able to cover the hospitalization expenses.
What if we didn’t have money set-aside? What if we couldn’t borrow from anyone? But Praise God we had the Emergency Fund, it literally came to the rescue.
If you don’t have an EF yet, please, please start building one now – for yourself and your dependents.
What is an Emergency Fund?
This is money or cash set aside for emergencies, usually this represents 4 to 6 months of your average living expenses. Or if you are the breadwinner for the family, the average household and living expenses of every one in your family, under your care.
Example: Your monthly living expenses is P16,500. A good target for your Emergency Fund will be P16,500 x 6 months = P99,000.
“That amount is too big! How can I build an Emergency Fund when my current salary is used up already? I don’t even have savings!”
This used to be my way of thinking. I was resistant. I was giving excuses. I refuse to see the necessity of building a fund that can cover emergencies and contingencies.
What worked for me is a change in mindset and changing my priorities. And realizing that I really need to have an emergency fund for my financial well-being, and that of my family.
STRATEGY FOR BUILDING an EMERGENCY FUND
I request you to do this:
For a month, list down all your expenses, even the P5 you spent on buying candies from a roadside vendor. Once you have a list, check the items. Which ones can you let go?
Let go first those which are considered ‘want’ and not ‘need’. If you’ve made a habit of drinking Starbucks every week, it might be best for you to lessen buying this expensive beverage, make it a once a month drink. If you love branded shirts from Uniqlo, why not shift to SM Surplus while you build your fund? If your transport preference is Uber or Grab or taxi to go to and from work, why not take a cab only when going home?
There are a lot of ‘money suckers’, big and small items that we may not be conscious of but we are actually spending for them regularly. Instill discipline in your spending habit, learn to let go of some wants, tiis tiis muna.
It is tough to let go of things na nakasanayan na, that is very true. But remember, you alone can help yourself.
START SMALL THEN GO BIG
A good strategy would be something like – compute for your average monthly living expenses x 6 months. Then set a target date or deadline for you to completely build your Emergency Fund, say within the next 2 years or 24 months you must come up with your EF fund at 100%. This way you can now compute how much you need to save monthly for EF.
DEMO: Using our original example of P16,000 monthly expenses:
P16,0000 x 6 months = P99,000
P99,000 / 24 months = P4,125 per month must be allocated to your EF fund.
But you might find saving P4,125 monthly a bit difficult for now and will altogether discourage you from starting. So here is my recommendation – Start Small Then Go Big.
Starting is the toughest thing to do. But you have to do it. Now. Aim to get into the habit of saving a portion of your salary for EF fund.
When you get your next salary, get a portion of it, say P500 and place this in your bank account or in an EF envelop if you prefer.
On the next salary, put in P1000 to your EF fund.
On the next salary, put in P1000 again. The next P1,500, and so on.
Aim not to falter in your monthly allocation for your EF fund, when you received a bonus, put more cash in. Get into the habit of saving and building an emergency fund.
Another strategy or way to allocate more cash to your EF fund is to CREATE MORE INCOME STREAMS. Get a sideline, racket, whatever is applicable to you. There are more ways to earn now like going for online writing gigs, working as a part-time tutor, selling goods, etc.
Remember…”If there’s a will, there’s a way. If there is no way, make your own way!”.
DO NOT TOUCH YOUR EMERGENCY FUND Unless There is an Emergency.
Celebrations like fiestas, birthdays, anniversaries are NOT emergencies. Buying the latest gadgets or splurging on the latest fashion are also not emergency.
An Emergency Fund is basically savings that is earmark for things like medical emergencies, getting fired from work with no warning, tuition increase by P5000 na walang pasabi-sabi, etc.
Why 6 months of living expenses for EF? This is to give you enough time to become productive again or to find work should you be terminated without warning from your job. You should be back on your feet again within 6 months of getting laid-off or fired.
Don’t wait for an emergency to start building your Emergency Fund. Start Today!
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