An emergency fund, which you can access in the event of large or unexpected costs, is considered a cash reserve fund. Establishing an emergency fund can help protect yourself and your family without falling into debt in times of need. After all, when facing unforeseen events, people often use loans or rely on credit cards. With an emergency fund, even in the worst situation, you can help survive or recover financially.
One of the essential stages towards financial independence is to have an emergency fund stored for the rainy days. Here are ways on how you can break down steps on building an emergency fund into smaller and practical actions if it sounds daunting to you to build your funds at once.
- Create targets that are doable
Begin your way up with a smaller initial target. Look at how much you spend first each month when it comes to understanding how much you should have in your emergency fund. Have at least enough money to cover your needs for 6 months. This is a good basis because if you suddenly lose your job, it may help you survive for a few months. Your target emergency savings may amount to 100,000 pesos, depending on your earnings. If this is the case, perhaps you should first focus on saving 10,000 pesos, then set another aim once it is met.
The right amount varies from person to person and depends heavily on your way of life and your needs. You probably do not need to set aside an exorbitant amount of funding for your emergency fund when you are unmarried and still living alone. If you have children at school, this amount must be much bigger, given that you have more expenses. If you still have any doubts, talk to a financial expert who can help you evaluate your needs and achieve a viable job. Give yourself enough time to save your target amount since no one expects an emergency fund to be ready in a month. However, you must remain consistent in funding your emergency fund.
2. Open different savings account for your emergency fund
Your emergency savings account must not be the same as your regular savings account because it creates a psychological barrier between the money that you can use and the money that you should not be spending. This also makes monitoring your money much easier and convenient.
3. Make your deposits computerized
For easy and effortless saving for your emergency fund, automate deposits so your money flows to your emergency fund immediately without thinking about spending it. Treat your bill as something that you must pay every month.
4. Save as much as possible
It will not hurt to add to your emergency fund some extra money to attain your objectives faster like your 13th-month salary.
5. Regularly check your budget
Are your deposits of emergency funds still difficult to keep consistent? You may always look at your cash flow and determine where your income can be reduced or even improved.
You might have noticed that you spend too much on take-outs. In order to add to your savings, you could perhaps consider home-cooked meals or avoid online shopping. You could minimize your spending on not-so-essential items and have some cash added for your emergency fund.
When times get difficult, the emergency fund's point is to serve as a buffer. It is not supposed to be the fund for your unessential wants. If you feel that your emergency fund is too much and you need support to find out where the extra funds are going to be spent, speak with a financial advisor or an employee of the bank. They can help you sort out your priorities and perhaps advise you to invest your extra money.
Sean Martin D. Plantado, a finance specialist at Digido.ph believes that no matter what kind of emergency happens, it is important to have financial plans. And having an emergency fund should be a top priority because it serves as the backbone of your personal finances.
Saving for unforeseen events, regardless of where you are, is important. You never really know when things are going wrong and even for a while, it is better for you to have money to relieve your burden. Money for emergencies may mean the difference between an emergency and a financial disaster in its entirety. Note that the sooner you start saving for your emergency fund, the sooner you can achieve your goals as long as you only use it for urgent situations.
