>> Saturday, November 14, 2009
Expect the unexpected.
Storms happen every once in a while in life. It may come in the form of unfortunate, man-induced events such as robberies, job loss, significant medical expenses, or literally, a storm that can leave one without any possessions at all. The saying “Save for the rainy days,” is proving to be a gospel truth now, more than ever.
If you’re one of the significantly few people who’ve had the discipline to set aside money regularly for an emergency fund, please feel free to navigate away from this page. If not, do stay on. It may be good for you.
In life, exit signs are not always present for you.
Where do you put your emergency fund?
In order to serve its purpose of saving you in times of, uh, emergency, this fund should be placed in an investment that is liquid, safe and has no holding periods.
How Much Should an Emergency Fund Be?
Experts say that the advisable amount to build should be 3 to 6 months’ worth of your salary. If you’re the breadwinner, or have pending loans and payables, the amount may have to adjust. The rationale behind is that should you lose your job, or any other substantial source of income, you’ll be able to maintain your lifestyle and don’t go hungry while looking for a new one. One way to see it clearly is by listing all your monthly expenses for one month. This includes your household bills, grocery bills, rent or amortization.
A perennial problem in starting an emergency fund persists: How?
A three to six months’ worth of salary doesn’t need to appear in your bank account on the fly. Start by setting aside a small portion of your salary every month. I know a certain person who kept loose change, often 5 peso and 10 peso coins in his piggy bank. Originally, he only wanted to get rid of the coins in his pocket. But after a few months, he was surprised to find he had Php 10,000 in it. Can you imagine how much it would have been if it was Php 100 every time? As Bam constantly say, “Don’t forget about the beauty of the small.”
Keep Track of Your Expenses
Do you ever keep notice that as your salary goes up, so does your everyday expenses? Wants and needs come up more frequently than the urge to go to the washroom nowadays. With malls springing up everywhere, the expenses brought about by things you only want and not need, will balloon if you’re not careful. So start keeping notebook in your bag where you can jot down, even the littlest of your expenses and see where you’re going overboard. There you can see, too, where you can cut down. Do you gulp more than one cup of gourmet coffee everyday? Maybe you can limit it to one a day and allot the rest of the money to your emergency fund instead.
Ever heard of perceived obsolescence?
Recently, a telecoms company launched a rebate program wherein you can avail of a brand new mobile phone or a two-year well, rebate. In a heartbeat, a normal Filipino would choose the phone, right? But in two years, does the phone’s value account for how much you could save if you chose the bill rebate? By then, how many other cellphone models have Nokia, Sony Ericsson or Samsung would have released to make the offered phone obsolete? Think about where you can benefit more. Especially if your current phone is perfectly working, the money you save on the rebates can go directly to your emergency fund.
If you’re decidedly aware that you’re capable of setting aside X amount of money, then by all means, automate it. A number of banks are now offering saving programs where money can be automatically deducted from your salary every payday. Not only it becomes less accessible, it becomes okay if you forget to save because the bank does it for you, yay!
These are not the only ways to be able to save for an emergency fund. For all we know, the most effective way for you is to use a piggy bank, or hide the money in your safety deposit box. As long as you are making a conscious effort in beefing your EF up, then you’re on your way in covering a financial requirement.
* Image from http://sxc.hu
**Originally written for It's Time!