I’ve started investing already and one thing that I forgot is to save my own emergency fund. I know it should be first on my lists! I’ve heard how essential it is to have one. Emergency fund should be a very liquid amount where you can pull out anytime in case of emergencies (of course from the word itself). It is an unexpected event that may require immediate consideration. Examples for emergency situations are: Medical Emergency, Job loss and Property loss.
The Buffer fund (that’s what I call it) should amount to 3-6 months worth of your total monthly expenses. Why expenses? Your Income and Savings may stop but sadly not the expenses. Let’s say if you get sick, you need to go to the hospital, your income will stop and we all know that no work - no pay, right? Also, in case you lost your job and you may have to maintain your current lifestyle. What if, at that point in time you’re still paying a debt? That’s a huge financial loss! This fund should be separated to your savings account.
How to start building your emergency fund? You should allocate a percentage of your monthly income for this one. Moreover, it depends on the amount of your total monthly expenses. Let’s say if you have PHP 5000 worth of monthly expenses, you have to save around PHP 15000 for your emergency fund. That’s 3 months worth of it. After hearing about 52 Weeks Money Challenge from Kuripot Pinay, I got this idea that I will align my emergency fund goal to this challenge. Personally, it’s a good start especially if you don’t have any idea how much percentage you should allocate on your income.
Where do you place your emergency fund? The money should be readily accessible. You may place it on a savings account with an ATM so that you can withdraw it immediately. Sometimes when we have readily accessible money especially with an ATM, you will without a doubt tempt to use it. You must have a strong will-power to resist temptations! Your attitude on handling money is imperative. Sale on the Mall is not an emergency! If you must, leave your ATM card on your house before it’s too late.
The Golden Rule: You should never ever touch your Emergency fund. You should only use it in case of urgent situations.
Having an emergency fund is really important. We’ll never know what will happen, so planning ahead is always better.
Kuripot Pinay 2015 Money Challenge: http://www.kuripotpinay.com/2015/01/my-52-week-money-challenge-2015.html