Emergency Alert!

How to get ready for the rainy season before it’s too late!

My family and I decided to go beach resort to spend some time together and to relieve our stress from busy work.

Before we leave our house, I felt a mild pain in my lower right abdomen. Since we are in the hurry, I just ignored it.

We had a whole day with lots of fun, enjoying the food and the pool. But the uneasiness I felt still bothered me.

When we arrived at home, I told my mother about the pain I was feeling. She told me took some rests and to drink lots of water.

Evening came and we were about to sleep. But the pain won’t let me sleep. It became worse and worse as hours passed by.

I was feeling terrible. I get up on my bed, wake up my mother and told her that I cannot take it any more. She decided that we had to go to the hospital.

Upon arriving at the hospital, the doctor immediately checked my condition. The diagnosis — acute appendicitis and need to be confine for observation after medicine injection.

After few hours of observation, the doctor checked me and told me a bad news. The medicine did not give positive results so the doctor recommended for appendectomy or the removal of my infected appendix.

I was surprised when I heard what the doctor said. One day your happy enjoying at the beach, then the other day your in the hospital.

Who knows what will happen next?

Gladly, the operation went well.

What worries me after the operation was the hospital bill. The bill was P60,000! During that time, I almost had P3,000 on hand. Thanks to HMO provided by my company, to Philhealth, and help from my Aunties and relatives, the hospital bill cash out was reduced to almost P2,000.

It is a blessing indeed!

Imagine if I don’t have the HMO or the Philhealth and my relatives, where would I get the money to pay the hospital bills?

Then I remember what Bro. Bo Sanchez said in his book, “My Maid Invested in the Stock Market?” about having EMERGENCY FUND.

“ONE DAY OR DAY ONE, YOU DECIDE”

What is Emergency Fund?

Emergency fund is money you set aside for an emergency situation such as unexpected unemployment, injury, sickness or natural disaster.

Let’s take an example.

You’re supposed to be on your Vacation yet you have to postponed it because you had used your pocket money in repairing the roof of your house damaged by typhoon,

Or you have to used to hard-earned money for tuition fee as payment for hospital bills because someone in your family got sick?

That when emergency fund comes in.

What is difference between Emergency Fund and Savings Fund?

Emergency Funds are designed to be your cushion during emergency and unexpected situation that may blow up your budget.

Savings Fund is the money you are setting aside for planned future purchase like tuition fees, going on vacation or buying something.

How Much Should I Save for Emergency Fund?

Before we answer the question, I would like first to define what Expenses is.

Expenses is an outflow of money to another person or group to pay for an item or service, or for a category of costs. In short, Money Out!

Expenses can be categorized into three — interest expenses, living expenses and lifestyle expenses.

1. Interest Expenses

If you apply for house loans or car loans, or have used your credit cards, or subscribe to any insurance plans, then these expenses fall under the interest expenses. As you notice, all these kind of expenses are earning interest if left unpaid or not fully unpaid.

2. Living Expenses

This is any amount of money you spend to sustain the basic needs of living like house rent, food, utilities, transportation, household supplies, tuition fees and the like.

3. Lifestyle Expenses

These are expenses you spend other than the basic living expenses. Having this kind of expenses is optional and it depends on the wants of the person.

Examples are going on a vacation, buying extra gadgets, subscribing to Netflix, club membership, coffee house drinks or any expenses to support your chosen lifestyle.

Now, going back to the question.

As recommended by financial experts, having three to six times your monthly expenses is a good start.

First thing to do is to list your monthly expenses. Good practice is to categorized them as interest, living and lifestyle expenses. You may list them by using the table format or you can create your own. Handwritten or in Excel, it doesn’t matter as long as you can understand what is on your list, it will be fine.

After getting your total monthly expenses, multiply it by three (3) and that would be your target minimum Emergency Fund.

Multiply your total monthly expenses by six (6) and that would be your target maximum emergency fund.

Example:

Let’s say your total monthly expenses is P10,000.

To get your minimum Emergency Fund,

P10, 000 x 3 = P30, 000

Now, to get your maximum Emergency Fund

P10, 000 x 6 = P60, 000

Meaning, you have to save up between P30, 000 to P60, 000 for your Emergency Fund.

Can I increase my emergency fund more than Six(6) months?

Of course, the more the better as long as it will not affect your monthly budget.

Simple right? It should be. Computing your target emergency fund is easy. But saving for emergency fund is another story.

How Do I Build my Emergency Fund?

Now that you have the list of your expenses and your target Emergency Fund, let us discuss ways or tips to build your Emergency Fund. This does apply also to any kind of fund you are saving up for.

1. Track and record your daily expenses

2. Pay your Debt.

3. Think about Applying for Loan More than 10x

4. Change your Spending Habits

5. Cut out your Lifestyle Expenses

6. Look for another source of Income

7. Set your Timeline

Tip #1 : Track and Record your Daily Expenses

The first step to getting your finances on track is to know where your money is going. But that isn’t always obvious: you may have a good handle on your monthly bills, but what about your daily expenses? You may be surprised by how much money you spend on small items — like food and transportation — when you add up your out-of-pocket costs.

Write it down on your notebook, use an Excel in your computer or use apps on your phone to keep track and have a record or your daily expenses.

Tip #2: Pay your Debt

After listing your debts and loans, sort them from highest to lowest based on interest rates. Since the one with the highest interest rate is costing you the most money, that’s the one you want to pay off first.

As much as possible, avoid paying minimum amount in credit cards or delaying your payment. This will only increase or prolong your debt off strategy.

Tip #3: Think about Applying for Loan More than 10x

Check first your income vs monthly payment obligations. If your income is P15,000 a month, then your payment obligations is P14,500 / month, then it would be unrealistic to pay off your loan.

Just in case you really need to loan, have time comparing the interest rates of other lending firms. Choose the best that will suites your capacity to pay and of course don’t forget to pay your loan on time.

Tip #4: Change your Spending Habits

How many times have you read or hear that in order to save you must “Live within Your Means.”

To “live within your means” means that what you spend each month is less than or at least equal to the amount of money you bring in each month.

If you can’t afford it, don’t buy it.

Buy only the things you really, really, really, really, really NEED. I have to emphasized “Really” so that you can differentiate your NEEDS and your WANTS. Your Living Expenses vs. Your Lifestyle Expenses. In addition, Just say NO to Impulsive Buying!

Also keep your spending habits in check when you got salary increase or bonuses. The common mistake of people who received this is that they intend to upgrade their lifestyle thus losing probable savings.

Remember, your income does not define your financial success, your spending habits are.

Tip #5: Cut Down your Lifestyle Expenses

Okay, I hear some objections. My friends, I say cut down and not to remove your lifestyle expenses. Besides it is a personal choice.

If can’t live without giving up your lifestyle, try looking for alternatives. Example, instead of paying for gym membership, why not try running outside or taking stroll with your pet. You can save as much as P1,000 to P2,000 per month. You can even buy your equipment with your own savings.

Tip #6: Look for Extra Source of Income

You already tracking your expenses, paying your debt regularly, decided not to apply for loan, had change your spending habits and cut down your lifestyle expenses, but still there is zero to minimal money left for your emergency fund. What should you do?

This time you have to find extra source of income. You can build a business by selling a product or service like, selling old stuff that you don’t need any more on OLX, selling your Skills online like 199jobs.com, Fiverr, E-lance or Upwork, being an affiliate Marketer or setting up a simple business like E-loading.

There are a lot of ways to generate income. Opportunities are everywhere. You just have to look for it.

Tip #7: Set your Timeline

Now that you know how much to set aside for your emergency fund and had find ways on how to save for it, next would be setting up your timeline.

Timeline is crucial in achieving your financial goal. You need to set deadline for yourself.

One method is by dividing your target emergency fund by number of Months to complete.

Example:

Target Emergency Fund: P30, 000

Months to Complete: 12 Months

Target Amount per Month: P2, 500

The shorter time you targeted the better. Make it saving automatic after receiving your salary or earnings.

Where Do I Put My Emergency Fund?

The best place to keep your emergency fund is to separate from your regular checking and savings account so it can be remain untouchable except for emergency only.

There are lot of bank accounts today that offer zero to affordable maintaining balance when opening a new account.

You can also set aside a portion of your funds at home just in case bank or ATM is not available in your area.

Put in an envelope, sealed it and label it “Emergency Fund”. and keep it safe until unexpected things happen.

Is it okay to have One Account for Emergency and Savings Funds?

As much as possible, it is NOT advisable to mix these two funds.

The reason you are encourage to build your emergency funds and savings funds separately is for you to manage and monitor them properly. This is to prevent, at least, spending both funds for what it is not intended for.

When Will I Use My Emergency Fund?

You already building your Emergency Fund and nearly meeting your target fund. The question now is when to use to it. We don’t want to lose its purpose just because you want to buy the newly released Iphone just to realize that you don’t need it at all.

So I listed below some of the major reasons to when to should use your hard earned emergency fund.

Reason #1: Losing Your Job

You got fired on your current job. Or your contract ends and was not renewed. Or the company goes bankrupt and needs to lay off employees and you are afraid that you might be included in the list. Or you just resigned in your job due to toxic boss or endless unjust workload.

Due to tight competition and a number of applicants, you are worried that you might not find a new job immediately because you have no money left in your pocket or your money will only last for days.

Reason #2: Sickness, Accident, Hospitalization

You got sick and had to leave your job for a long period of time. Or one of your love ones met an accident and need to be hospitalized. You may have an insurance or HMO to support your medicine and hospitalization but you need money right away.

In reality, not all employees are entitled with Paid Sick Leaves. Or not everyone can afford to buy an insurance or HMO. But the least you can do is to build your emergency fund to lessen the burden for situations like these.

Reason #3: Natural Disaster

Typhoon. Earthquakes. Tsunami, Volcano Eruption and even Tornadoes. Who knows when will these happen?

Yes, with the technology today, scientist can predict when or how strong these forces of nature will occur.

The question is, how ready are you? Do you have the enough fund on hand to support your family for these kinds of situations? Or to rebuild your house?

Reason #4: Death

Death is inevitable. We all know that we are all going to die. Preparing for circumstance like this should be the one of our goal in life while we are still strong and active.

You can add more than these list of emergencies as like car repairs, common house repair and the like. Just keep in mind to keep this fund untouched until such uncertainty happens.

Congratulations!

Now that you know what is emergency fund is, its importance and ways to achieve it, it is time to start hitting the mark.

And the right time is NOW! No what ifs, No excuses,do it NOW!

Commit yourself to your goal of building your own emergency fund.

Nothing compares to having peace of mind and security. Having something in reserve can mean a difference.

Enjoy your journey to stress free life!