Why you need an emergency fund

The COVID-19 pandemic has taught us many things, one of which is the importance of having an emergency fund.

With the unprecedented economic impact of the pandemic, many people found themselves struggling financially, with some losing their jobs or facing reduced income. The need for a financial safety net became more apparent than ever, and those saving for emergencies were better equipped to weather the storm.

As you start to have more disposable income, it is essential to understand the importance of having an emergency fund.

To be clear, an emergency fund is a separate savings account that you can access in case of unexpected expenses or a financial crisis. Ideally, it should be able to cover three to six months’ worth of living expenses.

Having an emergency fund can provide peace of mind and financial security, especially during uncertain times. It can help you avoid taking on high-interest debt, which can set you back financially in the long run.

Here’s how to start building your emergency fund:

• Aim to save a percentage of your income each month. One of the most important rules of saving money is that you have to make it a priority in your budget. This means that there should be a set amount that you’ll put aside for your emergency fund each month — and NOT whatever’s left of your money before the next payday.For example, if you make PHP 20,000 each month and you decide to put 10% of that into your emergency fund, then you should transfer the 10% or PHP 2,000 right when you get your salary, and then adjust your spending accordingly.As your earnings increase, you should also increase what you allocate for your emergency fund. The more money you have in there, the better you’ll feel about the future.Keep your emergency fund separate from your other savings and investments. This is essential as you want to be able to access the money quickly in case of an emergency, so a savings account that gives you easy access to your cash is a good option.
• Ensure that you keep your emergency account in a stable and reliable financial institution. It’s crucial to choose an institution that provides stability and security for your funds in case of unexpected financial setbacks, so you can have confidence that your emergency funds are safeguarded and easily accessible when needed. Look for institutions with a proven track record, strong financial standing, and a reputation for customer satisfaction.
• Automate your transfers. Consider setting up automatic transfers from your payroll account to your emergency fund account. You just have to set it up once, and then you can rest easy knowing that you are able to regularly set aside money for emergencies and unforeseen situations.
• Revisit your emergency fund regularly to ensure it is still enough to cover your expenses. As your income and expenses change, you may need to adjust the amount you save or the size of your emergency fund. It’s also smart to factor in inflation.

Remember that while the pandemic may be officially over, we’re all still riding out the ripples of its economic impact, and we don’t know when the next crisis may hit. It’s always best to come prepared — even if it means you’ll need to make a few sacrifices here and there. Start your emergency savings today and future-proof your finances. Ready to find out which savings account is best for you? Click here to learn more!