DESPITE what’s happening around us, the political and economic gloom, it’s never too late to start an emergency fund.
As the old adage in the vernacular goes: “Kapag may isinuksok, may madudukot.”
The COVID-19 pandemic continues to test our mettle as individuals and as heads of the family. With so many businesses closing down and Filipinos losing their jobs, it’s perfectly normal to feel a bit of what the future may bring, especially on the financial side.
But if there’s a lesson that our current situation can teach us, it is to prepare for the unexpected. In this financial crisis, we are forced to take a hard look at the state of our finances. This is when we realize the importance of having an emergency fund.
What is an emergency fund, and why is it so important? Find out how it can help you achieve a better financial situation and how you can build one today.
What’s an emergency fund?
An emergency fund is a savings fund that can be used for major unexpected expenses, the most common of which are hospital or medical expenses, house or car repairs, and appliance replacement. When you suddenly lose your job, you can also use an emergency fund to help pay for your daily expenses.
Why should you have one?
The current health and economic crisis is a good example of why you need an emergency fund. A lot of Filipinos lost their jobs because of this crisis, with a majority relying on government financial aid to get by.
When you have an emergency fund, you can mitigate the effects of this crisis on your finances and protect yourself and your loved ones. Here are more reasons why you need an emergency fund:
You have money to cover expenses
With or without a pandemic, losing your job is not something you want to happen, especially when you have a family to support and bills to pay but no backup plan. If you have an emergency fund, you can live off it for a few months while you look for a new job.
It can be your first line of defense
If there’s a major unplanned expense, an emergency fund can help you avoid taking out loans or maxing out your credit card. You also don’t need to borrow from family members or friends. As it turns out, loans and credit card debts can result in even more financial distress if not managed properly.
It can pay for medical emergencies
A lot of Filipinos have employer-sponsored HMO or health insurance. But if you lose your job, you also lose your health or medical coverage. Should you fall sick and get hospitalized, you’ll need to pay for everything out of pocket. And we all know how costly a hospital stay can get, right?
You can use it to pay for major repairs
We’re not talking about cosmetic upgrades to your home to achieve that Scandi or Nordic aesthetic. Nor are we talking about enhancing your car’s interior to make for a more elegant and comfortable ride.
There are more important and essential fixes, like fixing a clogged drain or a faulty air conditioner, or repairing a leaking roof. They’re not cheap, and they usually need to be fixed ASAP. When you have an emergency fund, you won’t feel stressed about where you’re going to get the money to pay for the repairs.
How much should your emergency fund be?
Financial experts recommend having an emergency fund that’s worth three to six months of living expenses. But times are unpredictable, so you can even save more to cover up to a year’s living expenses.
Compute your bare minimum expenses for a month (eliminate the non-essentials) and then multiply that amount by 12. It’s a big figure, but remember that it’s an amount you’ll save up for over several months.
Save whatever extra amount you have. Including what you can save from things you no longer spend on since working from home like parking or toll fees, gas, lunch outs, or takeaway coffees.
Start small, and then boost your emergency savings as time passes. The important thing is to have enough funds to support you and your family in a worst-case scenario.
How do you build an emergency fund?
Start with what you can afford and work your way towards bigger savings goals. And it’s important to put your emergency fund in a separate account. It’s so easy to spend your emergency money on non-emergency expenses when you only have just one savings account for everything.
For an emergency fund, you can open a separate savings or checking account. This way, you get easy access to your money when an emergency situation arises. Whether it’s an online account or a traditional account, choose the convenient option that will let you withdraw money anytime, anywhere.
You can start your emergency fund by opening a separate savings account that is dedicated only to growing your emergency fund.
FrontpagePH.com consulted with one of the country’s major banks, RCBC, who offered their wide range of deposit products that can help people start up on their own emergency fund.
They can get to open a Regular Savings Account with ATM at RCBC for an initial deposit and required average daily balance of only P3,000.00. This gives easy access to funds through a network of ATMs as well as through an online banking account. If there is a need to keep a physical record of transactions, open a Regular Savings Passbook for an initial deposit and required average daily balance of only P5,000.00. Seeing a record of growing money will give one that extra push to continue building the fund.
If you are an existing RCBC account holder and having a difficult time building the discipline to set aside a fixed amount every month, then the iSave is the perfect savings account. It is a virtual savings account that will automatically save a fixed amount monthly as it transfers a set amount from an existing savings or checking account, into a virtual account. Money kept in iSave can be withdrawn by transferring it to an existing savings or checking account, or by withdrawing it over-the-counter in any of RCBC’s branches. As an added feature, iSave account holders get to enjoy free personal accident insurance and hospitalization benefit by Malayan Insurance.
If you are only starting out, with no government-issued ID, and you are worried about minimum initial deposits and maintaining balance, our Basic Savings account may be just the account you are looking for. With a P100 initial deposit and a barangay certificate, you can already start building your emergency fund.
Emergency funds can also be placed in money market funds. They’re low-risk and very liquid investments that offer potentially higher returns than traditional deposit products. Why not put your money in RCBC’s Rizal Peso Money Market Fund? With just ₱5,000, you can invest in short-term fixed income securities like corporate bonds, deposits, and government securities. The Fund has no holding period so you can withdraw your investments anytime in case of an emergency. Also, your investments are accessible online so no need to run to the branch when you want to make additional placements or redeem from the Fund. The best thing about it is that you don’t need to do anything―just let RCBC’s team of professional fund managers do the work for you.
Discipline and commitment are important in building an emergency fund. Make it a habit to put money in your emergency fund. Set aside a portion of your take-home pay every month. If you can automate your deposits, do it so that you won’t forget.
Remember that an emergency fund is not meant to be spent when you have zero cash in your wallet. It’s for you to use in real emergencies.