Unexpected expenses such as emergency hospitalization, vehicle repairs, home damage, or sudden job loss can happen to anyone. While it’s impossible to predict when these situations will arise, having an emergency fund gives you a financial safety net to navigate such challenges.

According to a previous study conducted by the Bangko Sentral ng Pilipinas, only three in 10 Filipinos are resilient enough to withstand financial shocks. This highlights the importance of building an emergency fund to help you endure life’s unexpected challenges.

What is an emergency fund?

“An emergency fund is an essential financial tool. This refers to money put aside for unexpected financial expenses or sudden income loss,” said JM Pabiton, Chief Finance Officer of CIMB Bank Philippines.

Pabiton emphasized that an emergency fund is different from your regular savings and should only be used for unforeseen expenses.

“It should be the most liquid account you have. While you can also keep it in your savings account, emergency funds must only be used for necessary and important expenses, not day-to-day items,” he explained.

How much would you save?

Starting an emergency fund can seem intimidating, but Pabiton said the process can be broken down into smaller, more manageable steps. He recommends identifying your monthly essential expenses first, then working toward an emergency fund worth six to 12 months of those expenses.

“Personally, my benchmark is six to 12 months. This depends on your current situation. If you're starting, start with one month. Then go for two months, three months, until you get good at saving. Once you reach your target, you can focus on growing your savings, investments, and other long-term financial goals,” Pabiton said.

How to make it count

Building your emergency fund also means that it has to be accessible when you need it. Pabiton said digital banks can be a practical option, offering easy access to your money while earning competitive interest.

He also recommends automating your savings and being disciplined about what qualifies as an emergency. “There are certain situations that you cannot anticipate. Unexpected increases in the cost of basic necessities can constitute a financial emergency,” he said.

Building an emergency fund doesn't happen overnight, but even small, consistent contributions can make a difference. Start early, save consistently, and you'll be better prepared for life's financial surprises.