mamaravesph's blog: Why Do I Need an "Emergency Fund"?

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384252/Emergency-Funds

Do I need it? A simple answer to that question is YES.

Though you make lots of money, or your salary is always dependable and enough for you alone or your whole family – YOU need an EMERGENCY FUND.

First let me define what is emergency fund. Emergency Fund is saved up money you keep for unforeseen, sudden and emergency purposes. It is the type of money you only keep for that purpose alone, and not to be used for recreational reasons like buying your new smartphone, tablet, television or vacations. It is for that emergency purpose that I advise you to keep it somewhere accessible, but not where you can be tempted to withdraw from. My advice is to keep it in a saving account or a passbook account or a time-deposit. I even discourage putting it into an investment tool like stocks, UITF or Mutual Funds because it has to be readily accessible anytime. If you lose money because the market dipped, your emergency fund is at risk.

So why do you need it?

There is no way that you can foresee all events in your life. All good things and bad things happen. Life can screw you up the least you expect it to. These life events may happen that may need that kind of fund:

1. Abrupt cease of employment (ranging from quitting it to being laid off. Remember management doesn’t tell anybody the company situation going bad and you being laid off months before. It just hits you like a lightning);

2. Family member gets to an accident or gets hospitalized (your child, your spouse, your parents);

3. Family car breaking down (this can be a major expense if your car gets into an accident or major repair);

4. Your house needs repair.

So, how much do you need to build this fund? It is advisable to save 3x to 6x of you monthly expenses. This big amount of money will hopefully help you bounce back after a setback. This is enough money to look for another job, help a family member, some minor repairs for your car or your house.

But please don’t dip your hand on that fund for anything else. Your shopping, replacing or buying a new car, new gadgets are not emergencies.

Hopefully, when you build that fund a payday at a time and finish it building it up, you may learn to save more after it. After all, it will become a habit. And a habit of saving will make you more financially secured and stable.

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