Let Your Savings Save You: A Guide to Building Your Emergency Fund

More often than not, in Filipino families, the first family member to get employment becomes the breadwinner. This person carries the responsibility of providing for the family. While this role can be daunting at times, seeing your loved ones living a comfortable life and having all their needs met is a rewarding feeling that can take out the stress from work. But what happens if the breadwinner suddenly loses their source income?

An important part of being financially free is to be prepared for any unforeseen expenses or circumstances. Whether this is a medical expense or to make up for a sudden loss of income, an emergency fund can be your temporary lifeline as you try to recover from any financial setback. While deciding on building your emergency fund is an easy task, actually starting one can be a little complicated to some. Here’s a guide on how you can build your emergency fund.

Before jumping head first to saving for an emergency fund, you must first identify what types of situations warrant as a valid emergency. This way, you can easily recognize when you actually need to bust out your hard-earned savings.

Here are some cases when you can use your emergency fund:

• Health emergency – You can use your emergency fund for unexpected hospital bills, medication, etc., that can’t be covered by insurance or health care plans.
• Emergency home repair – In case of damage from natural disasters or unexpected home damages that need immediate repair, an emergency fund can come in handy.
• Sudden loss of income – An emergency fund can help you stay afloat for a period of time in case your monthly income gets cut off.

Now that you know when to use your emergency fund, here’s a step-by-step guide to help you plan out your savings:

A set goal for an emergency fund may vary from one individual to another, depending on their standard way of living. A good way to identify how much money you should save for an emergency is to pin down your current monthly income and expenses. Set aside at least three to six months’ worth your monthly expenses so that you can be sure you have enough savings to use should an emergency occur.

Once you have identified your target, the next thing you need to find out is how much money you are comfortable to save each month. Remember, saving money does not have to mean cutting back on your necessities. You can start by setting aside at least 10% of your take-home pay. That way, you can still have enough money to spend for your needs.