How To Build An Emergency Fund And Why It Is Important

Updated: January 3, 2023

Having an emergency fund is a necessity for everyone. It’s quite common sense to always have readily available cash for unforeseen expenses.

However, despite this fact, many do not have an emergency fund. And even if they do, it’s usually not enough.

I asked some friends if they have an emergency fund and fortunately, 6 out of 10 of them have one. Nevertheless, only 2 of them have more than one month’s worth of expenses saved. This brings us to a common question about emergency funds:

How much money should you save and keep as your emergency fund?

There is no precise answer to this question. But it’s best practice to have at least 3 months’ worth of your usual monthly expenses saved. The optimal amount actually depends on the stability of your income sources.

Single, regular employees are usually good at 3 months but married professionals should consider having at least 6 to 12 months worth of expenses as their emergency fund.

I guess the most practical way to know how big your emergency fund should be is to answer the question: If you lost your job now or if your business closes down, how many months will it take you to find new work or start a new business?


An emergency fund is something we never really think about until the time comes when you need it. So spare yourself of the stress and avoid unnecessary worries by building one as soon as possible.

One more thing, never think of your credit card as your emergency fund.

A few weeks ago, my car had some problems and I had to spend quite a sum on the repairs. My regular mechanic doesn’t accept credit cards.

If I’d taken the car somewhere else that does, I believe I would have spent more for the same quality of work. This is just one example that proves that there’s really no substitute to having cold cash when you really need it.

So how do you build an emergency fund? There are five basic steps.

Step 1: You have to track your expenses. You need a comprehensive look at your monthly spending to determine your personal costs of living.

Step 2: Assess your needs. Evaluate your financial status and decide how many months should your emergency fund be.

Step 3: Decide where you’ll keep it. It is usually best to open a separate personal savings account with ATM access for your emergency fund.

Step 4: Start saving. You can initially pay yourself first, then move on towards doing other money saving activities.

Step 5: When you reach your goal, continue saving and build your wealth through investing.

I believe that the last step is very important. When you reach your goal, don’t stop and continue to build your emergency fund. There are a couple of good reasons why you should do this.

First, as time goes by, your cost of living increases – you get married, you have kids, inflation happens, etc. When these occur, your emergency fund should adjust accordingly.

Second, your emergency fund can alternatively buffer and be used as an investment fund. When there’s an excellent opportunity that can’t wait, then you’ll have extra money that you can comfortably risk for the investment.

What to do next: Click here to start your financial journey with IMG Wealth Academy
Photo credit: mtsofan


  1. si angel cuala ng ay nahingi ng konting tulong financial sa inyo sa kadahilanan na ang butihing asawa niya e nadiagnose ng dengue. nakaconfine po ang asawa niya at nangangailangan ng 10k para sa blood transfusion. kung gusto niyo pong tumulong e iemail niyo ako sa [email protected]. ako na po ang tatanggap ng mga tulong financial niyo dahil unverified po ang paypal account ni angel. maraming salamat po.

  2. How about using a cash card which you can use to get a cash advance while your emergency fund is actually in a bond fund, which you can then unload if really necessary? Another alternative could be opening a BPI Express Direct Savings account that gives annual rates of 1.875% if your savings reaches 100K and 2% if beyond 500K, their interest rates beats any other bank I know. I believe this would suffice if you just want to have an emergency fund you can withdraw anytime. Just my 2 cents. =)

  3. For tracking expenses, a spreadsheet is most useful. You may use other applications such as Quicken, YNAB, MS Money, Mint, or the free Buxfer. But personally a spreadsheet is what worked best for me.

    If only starting to build your eFund, it’s best to join your company’s ‘paluwagan’ if there is one. Ask your HR about it. Our company have a program and last year, the participants earned a whopping 7% for their deposits.

    BDO offers 1.875% for about 10K deposit locked for 30-90 days; 2.75% for 180 days up. I know this ’cause I just inquired yesterday and I’m gonna open 2 time deposits tomorrow. Also, before opening a bunch of time deposits, a little analysis of the would-be income is in order to optimize the benefits of time.

    You’ll be pleasantly surprised πŸ˜‰

  4. @Yvon
    Good for you. Having an emergency fund is an empowering experience.

    Timing naman ang comment mo. Off-topic na medyo on-topic. Hehe. Usap na lang tayo sa chat bro. πŸ˜€

    That correct. Most people are easily tempted to buy something expensive when they see a lot of money in their savings account. By always keeping in mind that it is your emergency fund, I hope that they’ll now think twice before touching it.

    @Jay and twc
    I agree, there are ways to leverage your emergency fund to earn a little bit of money on the side while keeping it liquid and accessible. Thanks guys for the information. I will look more into those and probably write an article about it. πŸ˜‰

  5. […] Thursday FitzVillaFuerte.Ccom-How To Build An Emergency Fund And Why It Is Important […]

  6. Ah yes, I am not good in computing my previous expenses. But I think I used to have this emergency funds somehow before my family suffered from Dengue, and it was a nightmare in the mind, in my heart, and in the pocket.

    I am glad it’s almost over.


  7. […] and, being the sole breadwinner of the family, he had to shoulder all the expenses. Even though he had an emergency fund, it was not enough to cover all the hospitalization expenses and the cost of the […]

  8. Worth mentioning is that there is a Maxi-Savers product of BPI now where you have an ATM if you do need it right away, higher than regular savings (starting at 1.375% pa) plus 1% bonus p.a. for that month if you don’t withdraw from it).

    The minimum is 50k (though 25k for BPI Family). Nevertheless looks like a good balance between easily accessible money but not too tempting to spend because of the 1% bonus. πŸ™‚

    I think the first step is really knowing your monthly expense, come up with emergency fund based on that. Then invest the rest.

    Thanks for all the info shares Fitz, keep them coming πŸ™‚

  9. Good day!

    I’ve been reading your blog and I was hooked.

    Anyway, I would like to ask your advise. I just started working and I’m saving up coz I’m planning to have a special deposit account with BPI as my investment. Since, I’ve read your blog about emergency funds, I now have doubts on whether I’d open a BPI account or posond it since I still don’t have an emergency fund. I am also considering to continue with the SDA with BPI and condider it as my emergency fund..will that be wise?

  10. Hi Melissa, three months worth of your emergency fund should be in a simple savings account so that it will be easily accessible when needed. The rest of the amount, you can invest it already in zero or low risk instruments. πŸ˜€

  11. hi good day just to share my story me and my wife are ofw here in ksa both working as household service worker for almost 3 yrs now..we have 3 children 2 is in collage and 1 is a senior high..we rented an apartment in pasay..question is how can i save,invest for our future?our salary is less than 40k anyone can help advise what to do?hope someone read this and give me an advice..thank you and advance appreciated god bless

  12. Lesson from the 2019-2020 Christmas-New Year holiday. Family emergency with my Mother-in-law popped up. Not life threatening but still serious enough. I had given my beautiful bride a go signal, “full steam ahead” for the holiday dinners and expenses. We have ZERO debt and bills always paid in full soon after we receive them. We Will be fine until after the cellabrations I am thinking. Well guess what, we had no cash left in the house and apparently the ATMs were running dry!!! Many machines locally were empty and the rest would only dispense P2000 in P100 notes. Not good when my US based card is charged P250/withdrawal! New Years resolution, hold even MORE cash in the house and create additional local sources to tap emergency funds at times of extreme demand!!!

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