Updated: November 6, 2020
Everyone needs an emergency fund, which should be at least 6 months worth of your monthly expenses. That is, if you spend P30,000 a month, then your emergency fund should amount to P180,000 (or even a little higher).
A lot of people find it hard to save that much money. They’ll be able to save a few pesos, maybe 1 or 2 months’ worth of their expenses. But when the amount goes higher and closer to 6 months, most would give in to the temptation to spend a portion unnecessarily.
Fortunately, most people would suddenly become more disciplined at completing their emergency fund after surviving a financial ordeal, which actually happens more often than you’d imagine.
Just consider these 10 common life events when an emergency fund would become very useful or even a life-saver.
1. Medical Emergencies
Accidents happen. And even if we try to live a healthy lifestyle, we can still and will get sick. An emergency fund will always be helpful when we or any of our loved ones, need to see a doctor or go to the hospital.
2. Emergency Pet Care
Pets are part of our family. I know some people who love them as equally or even more than their relatives. That’s why when they get into an accident, look sick, or contract an illness – you’d be glad you have an emergency fund for the vet.
3. Sudden Rise on Inflation
The price of goods will always rise. It’s part of a healthy economy. At times, inflation can suddenly spike. And during this period, our emergency fund can be used to cover our budget deficit until prices become more stable.
4. Job Loss
Nobody gets fired weeks in advance. It’s always sudden and effective immediately. Having an emergency fund will give you ample time to look for a new and better job, instead of just accepting the first offer you get.
5. Job Relocation
Sometimes, a job promotion or a new job offer will require you to leave and relocate to a new city (or country). An emergency fund will be useful to cover the expenses of moving out and then moving into a new place.
6. Car Expenses
If you own a car, then you’re probably already used to having unexpected expenses. Having an emergency fund means you don’t have to stress out when your car batteries suddenly die, get a flat tire, have a busted light, or run into an accident.
7. Major Household Repairs
Just like owning a car, maintaining a home means being prepared for unforeseen expenses. The roof suddenly leaking, drainage and water pipes clogging, a major appliance breaking down – these are just a few of the possible things that can happen.
8. Urgent Replacement
Nowadays, it’s hard to live without a mobile phone. Having an emergency fund allows you to immediately get a new one if ever yours get stolen or breaks down. And of course, this also applies to home appliances and other essentials that you and your family use.
9. Unexpected Travel
Sudden death in the family could require you to travel unexpectedly to the province or back to the country if you’re working abroad. An emergency fund will be your source of cash while you mourn for your loss.
10. Funeral Costs
Thanks to the TRAIN Law, family members can now withdraw the money of their deceased loved ones from their bank without first paying the estate taxes. Thus, your emergency fund is also your funeral and burial fund when you die.
Having an emergency fund means being financially prepared to face any of these life events, which always happens without much warning.
It’s usually hard at the start. But when you learn the habit of saving, then building and completing your emergency fund becomes less of a burden and more of a blessing.
- Emergency fund calculator. Know the ideal amount you should have.
- How to build an emergency fund if your income is low
- Wrong places to put your emergency fund