6 steps on building your emergency fund

Building an emergency fund is one of the most overlooked things in financial planning. It may sound easy to save 10% of your salary a month for this but apparently, it’s easier said than done. Many Filipinos don’t value the importance of financial emergency preparedness. The sudden loss of a job, hospitalization and an unexpected natural calamity will get you in unplanned debts and may compromise the future of your family.

To build an emergency fund requires planning and strategy just like stock investing. You need motivation and the right plan of execution. So before jumping out into investing, I urge you to consider building it first and here are 6 steps on how to build your emergency fund.

6 steps on how to build your emergency fund

Figure out your spending habits

To start saving, you have to minimize splurge spending. Assess your spending habits and figure out where you spend the most. If you can’t figure out how much you spend, then it will be hard to figure out how much will you save.

Set a goal

My goal is to achieve a minimum of 50,000.00 Php worth of emergency fund in two years. The rule here is simple. Set realistic goals. So this means that I have to save 25,000.00 Php a year. That is 2,083.00 Php a month or 70.00 Php a day. For some people who doesn’t have dependents or aging parents to support to, you can save more. The thing is make your goals realistic and achievable.

Budget your way into riches

Now that you have identified your spending habits and have set your goal, it’s time to set your plan into motion. In my case, I use a simple rule and I call it the 10-20-70 rule. The secret here is motivation. Motivate yourself on saving, be frugal and learn to avoid splurge spending.

Open an emergency savings account

Now you’ve saved a lot of money, it’s time to put it where it can gain interest, a savings account. Since it’s an emergency fund anyway, best put it where you can easily make it liquid. It would be better if your emergency fund has it’s own savings account separate from your spending money so that you won’t be tricked into thinking that you have a lot of spending money. If you manage to spend your fund in an emergency, you can always replenish it on your next pay check.

Continuously build your fund

If you manage to earn extra, you may deposit it in your emergency fund. A portion of your 13th month pay or your bonuses should go straight to your emergency fund. After all, we can’t expect how much we will withdraw in case the time comes when we’ll need it so stashing a large amount of your money into this fund will make you feel more safer and secure.

Enjoy

Now that you have built your fund, it’s time to relax and enjoy. You can now concentrate on building your wealth in the stock market without the anxiety and fear of losing money when an unexpected event comes by.

Happy saving!