PERSONAL FINANCE Retirement Savings

Why an Emergency Fund Should be in Your 2015 Must-Haves And 6 Ways to Build One

September 28, 2015

I consider building an emergency fund as one of the most important foundation of financial success. 


Once unforeseen expenses arise, your emergency fund can cover the expenses. Thus, you won’t have any difficulty finding ways to get out of the emergency situation. Your emergency fund must be a reliable source. It must be stored in a place where you can easily withdraw or pull-out but still secured enough for you to keep. 

Why An Emergency Fund Should Be in Your Must-Haves?

There are five main reasons why an emergency fund matters.

1. You can avoid debt and/or pulling from your savings accounts
2. You have something to rely on or to fall back on
3. You have peace of mind
4. You can avoid late payments
5. You can get ahead smoothly in your financial life

Read: Different Ways You Can Apply the 52-Week Money Challenge


Getting Started

I had a few blog posts about emergency fund explaining the what and why. Again, emergency fund is the money you put aside and intend to only use on emergency situations. It acts as your first line of defense in case something goes out of the way. 

Emergency fund is composed of 3-6 months worth of your monthly income. For example, if your monthly income is 10, 000 a month then you need to be able to save at least 30,000-60,000 pesos for your emergency fun. 

Why that big?

An emergency fund is supposed to ensure/ to assure that you still have enough money to continue your daily lifestyle for the next 3-6 months or until you get a stable source of income. 

Be sure that your emergency fund is accessible! Put it in a short-term savings vehicle or any savings account that it will be safe yet can be withdrawn easily if something unexpected happens.

Have your emergency fund as part of your goal before 2015 ends. Setting a plan and sticking to it is the surest way for you to be successful. Start saving small portion of your monthly income to a separate savings account (an automatic savings account is a safer and better bet). Your 13th Month Pay or your Christmas Bonus can also give you a fast track to your fund. Sacrifice now and enjoy a better financial life later.

Read: How to Save Within Your Salary


When to Use or Not Use Your Emergency Fund?
Once you’ve successfully built an emergency fund, you now have to decide when to use it. What is considered an emergency, anyway?! Is a trip abroad an emergency? How about the sudden death of a family member?

Knowing when to use or not use your emergency fund will help you not drain the fund you’ve worked hard for to build. 

First, define the “NEED”

A need is something that is needed in order to live or succeed or be happy. It is something you are obligated to pay like shelter, health or food. It is situations where you need to pay for your monthly rent, to pay for your sister’s tuition fee or to pay for your overdue electric bill. 

Second, take note of the “UNPREDICTABLE”

There are cases/situations in our life that we can’t foresee. Again, last September 10, my Tita passed away and it was so sudden that all of us weren’t prepared emotionally and financially. Maybe you were suddenly laid off at work because your company experienced a sudden financial crisis.

Thus, your emergency fund should be used in times of REAL EMERGENCIES. It should not be used on situations that doesn’t count as an emergency.

Read: Learn to Invest Without Tears Before 2014 Ends


Who Needs an Emergency Fund?

ALL OF US  needs an emergency fund as all of us can encounter an unexpected bump in the road. But if you are looking for solid reasons then remember the following:

1. You are working toward a goal like owning a car, a home or starting a business
2. You or someone in your family have medical issue
3. You are only relying on one income
4. You are trying to get out of debt
5. You are focused to be financially at peace 

How to Build an Emergency Fund

No matter how little or how big your salary can be an emergency fund should be part of your must-haves. You can follow a simple yet effective strategy in how to build one for yourself. Combine any of the given way or stick to something that really works for you. 

  • Start as small as 500pesos a month or per pay day.

  • Reduce or totally stop an expense and use it for your emergency fund. It can be your gym membership, magazine subscription, specialty cafe addiction, vice or your cable TV.

  • Sacrifice your bonus or 13th Month Pay.

  • Save your change. This is something I did before and I was able to save almost 2,000pesos just for pa-piso-piso na sukli. It was so rewarding knowing how big those sukli can be.

  • Create multiple streams of income and/or an additional income. I know this can be tricky and hard but if you have some talent  or hobby that can help you earn then do it! 
The Perks of Having an Emergency Fund

I am not sharing to you the importance of emergency fund for nothing. I am encouraging you to build one for it is a necessity. Those who fail to save for the rainy days are more likely to be in debt and be in a financial loop hole. 

Your emergency fund will enable you to be better and to achieve more in life. As early as today, do it for yourself and do it for your future. 

Did you find this post helpful? Have you considered including your Emergency Fund in your 2015 must-haves?


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Clariza Glino

Izza of SavingsPinay promotes financial literacy for the young and young at heart by providing insights and tips on budgeting, saving, investing and online entrepreneurship. Aside from this blog she also writes at www.izzaglino.com, a beauty and lifestyle blog for frugal Pinays and manages, www.izzagevents.com, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her at izza@savingspinay.ph