Practice Prudency

Building An Emergency Fund

Posted in finance by airamailicec on June 7, 2009

I have been working in this financial institution for almost 9 months (I was hired as contractual and currently I am on probationary status) and I am slowly building my own emergency fund. So what’s an emergency fund(EM) anyway?

An emergency fund as the name suggests is intended for emergency use. That means buying the latest Nintendo DS using your emergency fund is not an emergency at all. I interviewed some of my colleagues if they know what an emergency fund is. The shocking truth was a BIG NO.

They were financially oblivious that there was such thing as emergency fund (and to think that I was working in a financial institution). So I came to share with them what an emergency fund was (A/N: I also came to know what EM was about after reading personal finance blogs just last year though.)

As this is my first job, all my savings goes to emergency fund directly. My goal is to put an emergency fund equivalent to my  6 months of gross income. I am diligently investing 20% of my net income to my EM account. I am hoping that by the end of this year my EM will be finished and I will have to start another savings for travel.

Why is it important to maintain an emergency fund anyways? Why not use your uncategorized savings for emergencies?

True, you have set a good amount of money to your savings account but where is it intended for?

It’s better if you categorize your savings to either leisure, travel or emergency. The latter needs to prioritized.

Emergency fund will help you in times of:

  • EMERGENCIES. You never know when you will experience one either it may be a natural calamity, health problem, or urgent repairs.
  • SUDDEN JOB LOSS/RESIGNATION. This will help you cope with your monthly expenses even if you don’t have income as of the moment. The transition period will make it convenient for you to adjust and get rid off your worries.

Consider your priorities of the moment and think if you can set aside 10-20% of your net income for an EM fund. Do not make your low income an excuse. No amount is small as long as you diligently save. Always think long term because that small amount will soon earn interest.

Why don’t you start one now? Go to your nearest bank to avail either an ATM, passbook or ATM-passbook account. Building an emergency account is as simple as that.

Here are links to other sites that offer tips on emergency fund:

http://frugalpinoy.com/saving/why-you-need-an-emergency-fund/

http://www.getrichslowly.org/blog/2006/09/08/how-to-start-an-emergency-fund/

http://zenhabits.net/2007/07/21-strategies-for-creating-an-emergency-fund-and-why-its-critical/

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