Set up your Emergency Fund in 3 simple steps

What if your company is downsizing and you're one of those whose contracts would be terminated? Can you and your family survive for the next three months while you go hunting for your next job?

A survey by the Bangko Sentral ng Pilipinas (BSP) states that 8 out of 10 household heads (e.g. bread winners) do not have enough cash saved for emergencies.

If you're one of these unprepared bread winners, you seriously need to work on your emergency fund.

WHAT'S AN EMERGENCY FUND OR E-FUND?

According to Investopedia, an emergency fund is money set aside to provide for urgent situations like a sudden loss of job, an unexpected illness, or a major expense. Ideally, an emergency fund should be equal to at least three times your monthly expenses.

This means that your back pay is NOT an E-Fund. A friend of mine said that he does not worry about having an E-Fund because if ever he has to apply for another job, he would just use the back pay from his previous employer. Here's what I have to say:

Yes, your back pay can help. But what if you still have to wait for one or two month before they release it? Where will you get your living expenses?

The same applies if you get sick and could not go to work. Where would you get the money you need if you don't have an emergency fund? You'd certainly end up borrowing money just to sustain your daily living expenses.

HOW SHOULD I START?

Setting up your emergency fund is very simple.

First, calculate your monthly expenditures and multiply it by the number of months you want to cover for emergency.

E.g.

Monthly Expenses:

Php 25,000/month

Preferred Months to cover:

3 months

Target Fund Amount:

Php 75,000

Second, decide when you want to attain the target emergency fund. This will determine how much to set aside per month. For this example, we’ll assume that your net take home pay is Php 30,000.

E.g.

Target Fund:

Php, 75,000

Completion time:

2 years

Amount to set aside per month:

Php 3,125

It is up to you to decide how long you want to save to set your fund up. What’s important is you have a goal and are committed to achieve it.

Third, put up a bank account specifically for your E-fund for easy liquidity. As much as possible, don’t put your emergency fund in a piggy bank at home because it can tempt you to use it little by little. Also, don't put it in other bank savings to keep your monies from being mixed up. Make that new savings account specific for emergency use.

SO, WHAT'S YOUR PLAN?

Start your Emergency Fund now while you still have a job or are still earning from your business. It would help you face emergency situations like the loss of a job, serious illness, or an important expense which need to be addressed at once.

Thanks for reading my article. Send me a message for questions by filling out the form below. You can also request for an appointment. It's always good to meet 1-on-1 to discuss your financial needs and plans. Also, feel free to put your comments below. I hope to hear from you.