Start Your Emergency Fund Now

Time to Save

Financial worries can lead to a lot of sleepless nights. Thankfully, there’s a great way to make sure you can sleep soundly, knowing that if the unforeseeable happens, you’re prepared to deal with it. That simple way is to save up for an emergency fund.

Why have an emergency fund?

A lot of people tend to forget to set aside money for unforeseen expenses. If you’re one of these people and you’re suddenly faced with expensive car repairs, an injury requiring hospital treatment, or another unexpected cost, you might panic. Without an emergency fund, you’d have to drain money from other savings like for your home improvement or your kid’s college fund, or you run the risk of increasing the use of your credit cards, or worse, incur debts.

Emergency funds can prevent this from happening to you. Most financial planners advise that you have enough stashed away for three months’ worth of living expenses, so you can be prepared for financial setbacks, even without warning. But saving that much money might seem too intimidating — especially when you can barely save. Below, we’ve put together a guide to a healthy emergency fund.

How do I start my emergency fund?

  1. Figure out how much you need for your emergency fund. Calculate all your expenses in a month, and multiply the result by how many months you want to save for. The number of months for an emergency fund differs for everyone, so think about how much money in the bank you’d feel secure with. For example, if your expenses in a typical month are P20,000, and you feel that saving 3 months’ worth of expenses is the right buffer for you, you’ll need to save P60,000.

  2. Set aside a reasonable amount to save for. For those of you who have just started saving, that P60,000 figure might seem like too much. You can break this down into smaller, more manageable chunks. Maybe you can put away P5,000 a month. If you do this for a whole year, you can have a healthy emergency fund. But if all you can save is P500 a week, then save that much. Don’t be afraid to start small — starting is the hardest part of building your emergency fund. Once you’ve figured out your budget, you can find ways to add to this P500. But always make sure that your emergency fund savings aren’t eating into your essential expenses: work the savings into your budget monthly so that you can adequately distribute your income.

  3. Set mini-goals for success. So P60,000 is your goal for the year, and even breaking it down into smaller chunks still seems too huge. Set mini-goals that serve as milestones to your main goal — P10,000 in two months, P20,000 in four months — to encourage yourself to keep at it. The better you feel about saving, the more you’re going to do it.

  4. Make saving non-negotiable. In other words, that P5,000 a month up there in #2 is untouchable (unless, of course, there’s an emergency). If going out with friends for a big night out means you can’t deposit that P5,000, you’ll have to postpone plans. Hardwire the savings amount you’ve chosen into your budget until you’ve built up enough of an emergency fund. When you’re feeling secure in your savings, then you can re-evaluate your finances.

  5. Automate your saving. You know what makes saving easier? Not having to think too much about it. Several banks offer an ‘automatic deposit’ option, which transfers money from your ATM-based account to a savings account. You just specify how much you want to save and when you want it transferred, and the bank does the rest. Bank products like BPI Direct Save-Up Automatic Savings and RCBC iSave can do this for you. Once you’ve got your automatic deposit system up and running, you’ll be adding to your emergency fund and you won’t even feel it.

  6. Find ways to add to your emergency fund. That jar full of coins that you have sitting in your house? Go ahead and take it to the bank to add to your fund. You can even make this a monthly habit, if you always find yourself with a lot of loose change. If you get unexpected money as a present or a bonus, set aside some of it for emergencies. Instead of going out every week, take a week or two off, and add that money to your savings. If you take a good, hard look at your expenses, you can see where you can shave off some pesos to add to your emergency fund. Don’t be afraid to cut back on some of your spending to add to your emergency fund; think of it as a short-term sacrifice for long-term security.

  7. Don’t touch it. Some people start an emergency fund, but then they see that they have enough money for a trip or a shopping spree, and they empty the account. Be disciplined about keeping the fund untouched. If it helps, you can make it a little harder to access by selecting a savings account that doesn’t provide an ATM card, or that penalizes you for frequent withdrawals. Limits like these can help you not touch your emergency fund — unless you have a real emergency.

Of course, following these steps won’t suddenly result in hundreds of thousands of pesos magically making their way into your emergency fund, but like we said, starting is the hardest part. So go ahead and make that initial deposit into your fund, be it P50, P500, or P5,000. It’s an investment in your financial security.

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