Emergency Fund 101: How to Prepare for Life’s Unforeseen Events

An emergency fund is a substantial amount of liquid assets/funds that you can use in case of unprecedented events like the following:

• unexpected termination of employment
• accident
• death of a family member
• disasters (fire, earthquake, flooding), etc

If I have savings/investments, do I still need one?

Let me stress the term: emergency. So ang tanong, pag may emergency ba and need mo ng agarang pera, pwede mo ba makuha agad yang savings/investments na yan?

Hmm… let’s see:

• Regular savings na nasa bank, pwede pero dipindi. Ang tanong, para saan ba nakalaan yung regular savings mo dapat? Kung ang sagot mo is for scenarios like these, then congratulations, may emergency fund ka naman pala. (Skip mo na yung article, sa next topic ka na.)
• Nakatime deposit na savings, ekis.
• Investments (MP2, stocks, mutual funds), ekis. In addition, paano kung bear market? Eh di nagbenta ka ng palugi ng stocks or mutual funds? Lugi negosyo, ika nga.
• Okay, clear enough! But what about using credit cards, you might say? – Eeeng! High-interest fees!
• Utang sa kamag-anak or kaibigan? Will you be able to pay them immediately?

I remember during the onset of the Covid-19 pandemic wherein we had a Luzon lockdown (March – June 2020). I’m grateful that my company is generous to give us half of our salary, even though we don’t have work at all. Yun nga lang, it wasn’t enough to cover my expenses at that time. Do you know what I had to do? I had to sell some of my stocks at a loss. That was a bear market wherein dapat bumibili ka ng stocks kasi mura sila at hindi nagbebenta.

So the main purpose of having an emergency fund is to ensure that you:

• have readily-available cash that you can use at the time of need
• won’t be forced to sell assets at a lower price
• have peace of mind

How much do I need to save for an Emergency fund?

The amount you need to save for an emergency fund boils down to 2 factors:

1. monthly expenses
2. stability of your source of income

To get the actual amount that you need to save for your emergency funds, calculate how much you spend each month on your expenses, then multiply it by 6 months. That should be your goal. So if your living expenses are 20K each month, you should save up to 120K worth of emergency funds.

However, this is not an exact science and some people may just need 3 months’ worth of emergency funds while others may even need up to 12 months. We can use this as a guide:

• If you have a stable job from a solid company, then 3 months would be okay at least.
• For those who don’t have a stable job (usually contractual) or whose employer has a high employee turnover rate (meaning mahilig magtanggal ng empleyado), you should save up to 6 months’ worth of emergency funds.
• Freelancers should at least have 9-12 months’ worth of emergency funds.

Where should I put my Emergency fund?

Most likely sasabihin mo, saying naman kung ilalagay ko lang sa commercial bank yan. Ang liit ng interest. Eh kung ininvest ko sana yan eh di kikita pa. I agree with you 100% dun sa wag ilagay sa commercial bank.

My suggestion? Then, put it in high-yield savings accounts like CIMB/GSave, Maya, or Seabank that offer 4-6% per annum. Madali mo silang mawithdraw during emergencies. Tapos di rin natutulog ang pera mo.