Emergency Fund: Why Do We Need One
It’s been almost a month since the island of Luzon was put under enhanced community quarantine. Not only the Philippines was affected by the Coronavirus disease (Covid-19). It has gone global, affecting almost all countries and millions of people.
Coronavirus creates fear among people, some are hopeless, shattered and even desperate. While others, lost their jobs and source of income. Restriction is impose on travel, mass gatherings and public functions. People are urge to follow proper hygiene and to maintain social distancing.
During this difficult time we came to realize that life can get tough especially if you are not financially prepared. It’s hard to rely on the support given by the government. There is no assurance as well that we can continue to earn during the quarantine period.
It also doesn’t mean that if we are staying at home, we don’t need to spend. Actually expenses are continuous that’s why we have to be ready. But it is never too late, we can still build up our emergency fund to help us through challenging times.
What is Emergency Fund?
Emergency Fund is a separate account dedicated in case of cash deficits during uncertain times such as loss of income, illness, accidents or unforeseen expenses. Your fund should be liquid, easy to maintain and accessible.
Having an emergency fund is more than just being practical but it is being responsible. You are assured that you have sufficient money in times of need, the peace of mind you get, knowing that you are financially secured during the rough times.
How Much Emergency Fund Do I Need to Save
The ideal emergency fund should be 3-6 months of living expenses. Daily expenses such as food, loan payment, utilities, rent should be considered. This may sound a lot but you have to keep in mind that this may become the total expenses in case the income stops.
Keeping Your Emergency Fund
Emergency Fund should be liquid, easy to access and retrieve in times of need. Keep in mind that it should be a separate savings account so you would not be tempted to use it.
BPI has saving products like BPI Save Up, this form of savings account is very ideal. BPI Save Up allows to automatically transfer a portion of your ATM Account to Save Up account. You may check BPI website for more details. Others opt to use money jars or money envelope to safe keep their emergency funds.
Why do I need an Emergency Fund
Emergency Funds create a financial buffer to sustain you during tough times without relying on credit cards or take out on high interest loans.
How to Build an Emergency Fund
- Set a Goal – list down all your monthly expenses. Once you have the total expenses per month multiply it by 3 or 6 depending on your goal.
- Determine you goal for monthly savings – Set an amount of monthly savings you can allocate for your emergency fund and stick to it. You can apply for an automatic transfer of your money from your payroll account to your savings account.
- Find an extra source of income – As we know sometimes our income are not enough to cover our expenses. There are other opportunities to earn, be an online seller, a content writer or financial adviser.
- Trim down your expenses – Look for ways to cut your expenses. Identify wants and needs. If you are into branded items, try looking for items in a lower cost but the same quality. Share Spotify or Netflix subscription with a friend or colleagues and divide the cost.
- Keep the changes – Create a jar for change and coins, you may add it to your savings account once you filled the jar.
- Increase contributions – Add fund to your savings in case you clear your debts or you receive a salary increase.
Start Building Emergency Fund Today
The emphasis on having an emergency fund through savings is exactly for times like these. The need is now evident and you have a buffer that can tie you off for the next few months to come. And not only that, you can have a little left to help others who are in need. All those saving money over time may be difficult and corny but now we begin to appreciate the value of doing so.
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.