What’s an emergency fund? Why do we need one? If you’re the type who’s learning more about personal finance, having one plays an important role in managing your finances.
Because life could throw you a curveball at any moment, especially when it comes to money, it can be the difference between living comfortably today and scrounging for coins just to eat tomorrow.
Since I started working early this year, I focused on making my own emergency fund. It’s never too late to start yours too! So here’s some of the key points you should remember. But first…
What Exactly Is An Emergency Fund?
As the name implies, it’s funds used for emergencies. It’s money set aside for future uncertainties which may include getting hospitalized, loss of income (resignation), and other sudden events.
Emergencies do not include Lazada/Shopee flash sales or Piso Fare travel promos. This also applies to those expenses that you should have saved beforehand such as rent, utility bills, tuition, and weddings.
Why Do You Need One?
It’s helpful as it’s able to cover expenditures you might not have the budget (right now), like when your car breaks down.
If you plan on investing, the very first thing you need to do is to build up your funds. This acts as a buffer should the moment you need it arises, without having to touch your main source of funds for everyday living.
How To Build Your Emergency Fund
To begin, you should already have a budget in place or at least determine how much money you can set aside per month that will go toward your emergency fund.
When it comes to how much you should set aside, most save up 3 to 6 months’ worth of expenses or your salary. Basically, you should have enough money to cover you in the short-term.
Lastly, it should always be accessible in the form of a liquid asset (cash) and stored at bank account, preferably savings, for immediate withdrawal.
How much will you save for your emergency fund? Share your plans in the comments below!