Sunday, August 18, 2013

What is Emergency Fund and why it matters

It may seem to be uncommon to lot of Filipinos but we should start building emergency fund as early as we can. Emergency fund is your savings account set up to cover unexpected life emergencies.

For example, na-ospital ka, you need urgent money and you cannot sign. What would you do now? In the absence of money, it is possible that you would either borrow money for your families, relatives and friends or get more debt.

Why it is important?

It is important because we cannot tell what tomorrow brings. Portion of our money should be saved to pay for unexpected events or emergencies. Emergencies may include sudden loss of a job, medical emergency, natural calamity and accidents due to unexpected events. Without emergency fund unexpected events will be new financial burdens because taking on debt becomes the only way to pay for.

How much money should be saved for emergency fund?

Most of the financial planner’s advice, we need to save at least three to six months of our salary or living expenses. If currently you don’t have an emergency fund or medyo nahihirapan kang magsimula, start small and gradually increase it over time. Any emergency fund is also better than no emergency fund at all.

For example, kumikita ka ng 10,000 pesos per month magtabi ka ng atleast 30,000 pesos for your emergency fund (Php 10,000 x 3months). To reach this amount, it is recommended to save at least 10% of your net income hanggang maabot mo yung emergency fund. In case na mahospital ka and you need urgent money you can have near cash and you will have peace in mind to minimize the stress.

It may be sounds difficult to save for emergency fund but in the long run sacrifices pays off. Always remember that even a couple of piso a day can make a big difference over time. Practice delayed gratification. In the end, emergency fund will give you peace of mind.

Live simple, prioritize saving over spending and don’t leave nothing to your income. Sabi nga sa The Rich Man in Babylon, “A part of what you earn is yours to keep”.


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