If you’re struggling with every unexpected expense, you will benefit from an emergency fund. Going without one is like operating without any savings, or playing a role-playing game without any weapons or mana.
Having a robust emergency fund gives you peace of mind. You know that, whatever happens, you’ll stillbe able to pay your rent and your monthly utility bills. It also gives you a little more freedom.
If you decide to leave your job, for instance, having an emergency fund gives you the means and space to take some time off, in case you want it.
Keep in mind that the right amount of an emergency fund varies from person to person. It should be equivalent to 3 to 6 months’ worth of your total living expenses, including mandatory expenses, such as rent, utilities, and car payments. It should not include eating out, dates with friends, and saving for retirement.
Emergency funds should be taken as priority savings.
Where to start
- The easiest way to feed your emergency fund is to cut down on unnecessary expenses, like splurging on food. You can save so much money by making your own coffee, for example, instead of buying from your favorite coffee shop.
- Revisit your daily budget and see where you can save. Any discrepancy you find can be adjusted and put into your emergency fund.
- Knowing where your money is going is a great place to start to eventually managing it. Don’t get overwhelmed by this exercise. Be honest with yourself and track down every daily expense. Then, you can see what you can cut down on.
You’ll be amazed at the many ways you can save if you’re willing to spend a little time doing some research and tightening your belt. Treating yourself is good once in a while, but you should ultimately be focused on treating yourself to a better future instead.
Use money as a tool to shape the life and lifestyle you want to live. Think of it this way: If you find yourself in an emergency in the future, are you financially capable of taking care of yourself?
If you have some money invested already (even just in a savings account), always consider the long run. You might be thrilled to see the thousands of pesos in your account, and then be tempted to use some of it because your favorite band is coming to the Philippines. Don’t do it. Emergency funds are meant to be used only for unexpected and important expenses.
Once you’ve set up your emergency fund, you can consider investing. Investing can help you better prepare for your retirement and make you more money in the long run than just saving.
Remember: Money should be properly managed during the good times and bad. While no one wants to have bad moments in their life, setting up a healthy emergency fund is one of the smartest things to do. This way, you are less likely to have a difficult time during a sudden crisis.
