The unfortunate fact about emergencies is that, by nature, they always happen during the most unpredictable time. Plus they require immediate action on your end.
Examples of such emergencies include sickness or hospitalization of a loved one, necessary house repair because of a natural calamity, unexpected loss of job, and many others.
While these unpleasant scenarios can happen to anyone, anytime, there is something you can do to prepare for them.
Having an emergency fund can indeed be a lifesaver for many extreme situations.
1) Having an emergency fund can reduce your stress.
With an emergency fund, you do not have to go through the worry and hassle of desperately looking for someone from whom you can borrow money during your time of need. Having it can really reduce your stress.
2) It challenges you to budget your money properly.
Of course, building your own emergency fund requires effort. For the most part, you will have to set aside money from your income in a regular basis. You become more self-aware about your spending habits and try to avoid unnecessary expenses.
3) You will think twice about going into debts.
It likewise follows that you will be a little more hesitant about the idea of getting into debts. Why? Well most will not lend you money unless they come with interests so this is something you wouldn’t want to get into. While debts may be necessary for important things (such as education, housing, etc), you will not borrow money just to afford the luxuries of life. You’d rather save the money for your future needs.
So, how do I get started and how much should I aim to save?
As mentioned earlier, you should make saving money a regular habit. The best idea is to set aside a fixed amount right after you receive your salary. Do not wait until the end of the month saying you will save whatever is left with your money. Chances are, you wouldn’t have any amount left when that time comes. So yes, building your emergency fund should be among your top priorities.
Be sure, however, that you put it somewhere readily accessible. Saving it in the bank is good since you can easily withdraw money when necessarily, as opposed to putting it in mutual funds or other investment ventures. Old-school coin banks are also good but make sure that you keep it somewhere safe. Once that gets stolen, then your entire fund goes with it.
As far as the recommended amount is concerned, a safe target should be at least 3 to 6 months of your monthly expenses. This means that if your monthly expense is at Php 30,000, then you should aim to have at least Php 90,000 to Php 180,000. This will allow you to the peace of mind of living your current lifestyle without having to get debts left and right.
To put it plainly: If you still do not have an emergency, you really should start saving soon. It’s definitely for your own good.