by Ricky Publico, on category "Personal Finance"
August 1, 2019
By now, you already know the importance of setting aside money for your savings. But what about an emergency fund? Aside from saving for the far future, it’s also advisable to save money for emergencies in the near future. You might end up with a medical emergency or you might end up losing your job. It’s always best to prepare your wallet for the worst.
The general rule of thumb for building an emergency fund in the Philippines is to save an amount equivalent to your salary for three to six months. That should cover medical fees, car repairs, daily expenses brought by unemployment, and other emergency situations. And before you ask, buying new clothes or gadgets doesn’t count as an emergency.
Admittedly, it’s going to leave yet another dent to your wallet, but you’ll be getting financial security in exchange. If you didn’t know about this type of savings fund, you’re not alone. More importantly, it’s not too late to build one. Get started with your own rainy day fund with these helpful tips.
As mundane as it is, creating a budget is always an essential step in making any financial decision. If you haven’t already, start the culture of creating a budget every month to help you manage your money better. But if you’re already following your own, adjust it so you can find room for your emergency fund savings.
If possible, prioritize your emergency fund the way you prioritize your savings. If your current budget can’t accommodate it, start trimming some expenses. Try to explore ways to save more like cooking meals at home instead of eating out, carpooling instead of using expensive ride-hailing apps, or unsubscribing from streaming services.
While a standard emergency fund should support you for three to six months, it doesn’t mean you need to aim for a high amount straight away. If you’re just starting your rainy day fund, try setting a low target that is reachable in a short amount of time. You can even use an emergency fund calculator to help you determine the right initial amount for you.
You can initially start building your rainy day fund at PHP 10,000. If you’re receiving PHP 25,000 every payday, you can set aside PHP 2,500 and reach your goal in two months. Once you get the hang of it, try raising your goal so you can build up a higher emergency fund savings. That way, you’ll be able to secure your immediate future without starving yourself financially.
It’s not enough to make saving money a habit. You have to integrate it to your way of life. Experts say that you have to do something for 21 days straight before it becomes part of your system. So for the next few days, try incorporating money-saving activities in your routine like comparing prices, packing lunch for work, conserving energy, and others.
Take it up a notch by getting your own piggy bank where you can store coins and smaller bills. This helps highlight how small investments can lead to big returns in the future. You can also start writing on your own financial journal where you can record your spendings, daily and monthly budget, and the computation of your emergency fund savings, among others.
All of these savings talk can definitely overwhelm some people. That’s normal, but always remember that you don’t have to suffer just to save money. You’re still free to splurge from time to time, within your means of course. Starting a rainy day fund is just you setting up a safety net for when you can’t sustain your way of life anymore.
You don’t even have to set a specific amount for your fund. “Start stuffing whatever money you have into that cushion,” financial blogger Trent Hamm said in his blog. “Even a small emergency fund will make a difference.” If you don’t want to follow the standard three to six month rule, set your own standards. As long as you’re making an effort to save, you’ll be fine.
Once your emergency fund starts growing, you might be tempted to spend some of it and justify that you’ll return it the next payday. As much as possible, don’t stifle its growth by spending it on non-emergency purchases. Once a real crisis emerges, you’ll be glad you kept your urges at bay because now you have enough money to take care of it.
To further prevent you from using your rainy day fund, automate the process of saving for your fund using the automatic savings program from banks like BPI. You can also go old school with it by keeping your fund inside a personal vault. It’s important to limit your access to your emergency fund, but not too much that you won’t be able to use it when an emergency comes.
Of course, your emergency fund won’t grow overnight. You have to start somewhere and there’s no better time to start than right now. As long as you have the willpower and discipline to two types of saving funds, you can take care of any crisis from now on, regardless of urgency. Start building your own emergency savings today and take one step closer towards financial freedom.