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.
What is an 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:
STEP 1: Set a goal
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.
STEP 2: Stay on track
Of course, reaching your goal amount won’t be possible if you don’t practice discipline. Make sure that you’re being diligent with setting aside money for your savings by “paying yourself first.” This means that before using your income on other expenses like bills, groceries, or other necessities, you must first set aside the allotted amount you need to save each time you receive your pay check. You can also make saving easy by setting up scheduled automatic deposits to your savings account.
Additionally, make sure that you are not dipping into your savings especially for unnecessary purchases. A good practice is to open a separate bank account that is dedicated to your emergency fund. Separating your monthly budget from your savings lets you get a better perspective of how much money you can only spend each month and at the same time, prevent you from taking out money from your savings.
STEP 3: Strengthen your savings
Ensuring that your savings is future-proof is vital as inflation may affect the value of the money you’ve saved over time. Keeping your savings in a bank not only helps keep it secure, but can also let your money grow from the interest the bank pays you. Look for banks that offer 1600% more interest than the country’s leading banks like CIMB Bank.
Opt for accounts like CIMB Banks’ UpSave where you can get the best-in-market interest rate for your savings. Enjoy up to 4% p.a. interest in three different ways! If you’re 18-25 years old, you can get a higher interest rate on your savings with 4% p.a. interest and get FREE Personal Accident Insurance coverage worth PHP 50,000 with the CIMB Savings Starter Pack. Just deposit at least PHP 500 in your account each qualifying month.
If you’re 26 years old and above, you can still get 4% p.a. by increasing your average daily balance (ADB) each month by PHP 1,000. You can also maintain a minimum balance of PHP 100,000 to get a higher interest rate and free Life Insurance Coverage worth your ADB of up to PHP 1,000,000.
Be prepared for any emergency and seize life’s challenges with CIMB Bank.
Visit this link to learn more about the CIMB Savings Starter Pack.