At an early age I took to heart the saying, “save up for a rainy day” and the story of the worker ants who were always busy saving food during good weather, that way they have enough when the rainy days arrive. I started working when I was still in college and had to pay for my education. I was very grateful to be on working scholarship grant but I still had to pay for books and other expenses for school like projects, etc.
I learned the value of money and saving up at an early age. I enjoy reading books and when I like one, I save money to buy that book. That’s how I learned the lesson of delayed gratification. I had to save and not be tempted to buy the small things that I want that way I can finally buy THAT book.
I also learned that there can be life situations that will need us to be ready financially too. That’s why it’s important to have an emergency fund.
What is an emergency fund?
An emergency fund is a personal budget set aside as a financial safety net for future financial dilemmas or unexpected expenses.
Financial dilemmas can be:
Loss of a job
An illness (yours or a family member)
Major repair that cannot be ignored for your home or car
Safety net savings during a pandemic (like what we have now)
An emergency fund is a liquid asset that you can quickly and easily take out from where it is kept, perhaps in your your savings bank account. Or available cash kept at home, if the banks are closed for an indefinite period of time.
Your emergency fund can be 3 to 6 months worth of your monthly expenses saved.
Why is it important to have an emergency fund?
Emergency fund will give you peace of mind and a good night’s sleep knowing you have enough to tide you over should an emergency happens. May it be a small bump in your financial life or a complete disaster in your entire life.
It saves you from the worry of not having money to pay rent or get your car fixed if it breaks down and the awkward feeling of borrowing money from family or friends.
Operative term for me here is PEACE OF MIND.
How do i start building my emergency fund?
- Identify where you want to save your emergency fund.
It could be a savings bank account where you can link to your payroll bank account.
That way it will be easy for you to move around money once you get your salary every payday.
The idea is when an emergency happens, it will be easy for you to take out the funds.
So the savings bank account should have an atm card provided, with several machines accessible.
But of course you need to be disciplined enough not to withdraw money from it for impulse buying. - Figure out from your expenses what your needs are versus wants.
Ask yourself if you can live without a cable TV subscription, replace your gym subscription with a home workout, or if you really need a premium Spotify account? etc. - You can start your emergency fund with how much amount you can save from the expenses you can cut off. You just need to make sure you do put it away in your emergency fund and not use it for another expense you THINK is a need.
You can decide to save anywhere from P100 to P10000 every month to practice your self discipline. Or you can decide to pay yourself first – decide on a percentage to take out from your salary. It can be 10% or 20% then it goes straight to your savings/emergency fund. The remaining amount will be for your expenses. I started with 10% and eventually challenged myself and made it 20%.
- Stick to your saving activity regularly. Avoid delaying it or postponing it to the next salary or to when you will get your 13th month pay or that bonus. Remember an emergency can happen any time, any day.
- When you are done completing your emergency fund, then whatever amount that you save you can decide to invest it in a business, or you can create other kinds of funds (travel fund, self learning fund, etc.).
Do not stop saving. Even if you complete your emergency fund, best you keep doing the habit of saving. Use it to reach your financial freedom.
omnimademoiselle 