Why Filipinos Should Consider Building an Emergency Fund?

Emergencies happen, and when it does, it pays to be prepared. Almost all types of emergencies require money, which makes having an emergency fund in place extremely indispensable, especially during uncertain times.

The year 2023 may just be your perfect year to start building an emergency fund to financially protect your family from all sorts of emergencies. In this article, we'll talk about the benefits of having an emergency fund in the Philippines and the vital steps you can take to build one.

What is an emergency fund?

An emergency fund can be described as a financial safety net intended for unanticipated expenses and other future misfortunes. The chief purpose of having an emergency fund is practically to have money in times of financial trouble and unforeseen expenses. This could be a medical emergency caused by an illness or an accident, or a sudden job loss.

Why You Should Consider Building an Emergency Fund

There are key benefits to having an emergency fund in the Philippines. Whether it's for future medical expenses or property damage requiring immediate repair, an emergency fund will allow you to reap the following benefits:

It can give you peace of mind

With an emergency fund, you become less worried about the prospect of a financial distress. If it's not about hospitalization or sudden unemployment, it could be a major home repair that needs funding. In this case, having an emergency fund enables you to have something to get money from for these financial emergencies.

Maintaining one can keep you from impulse buying

Having an emergency fund that you feel obligated to maintain will help you avoid making impulse purchases that will only ruin your financial goals. Building your emergency fund then becomes a financial obligation that you will be motivated to complete and accomplish.

It makes borrowing needless, and you can lead a debt-free lifestyle

When a financial emergency happens and you don't have an emergency fund, the logical thing to do is to borrow money, be it from friends, relatives, or financial institutions. This is not considered a bad debt if it's going to be used to fund hospital bills, a home renovation, or a job layoff. But if you managed to build an emergency fund, borrowing money becomes needless, or at least the amount you'll need to borrow will be minimized.

Steps to Build an Emergency Fund

Emergency funds tremendously help during financially stressful situations. Free yourself from this nightmarish prospect and start building your emergency fund with these essential steps:

Start by creating a budget

It all starts with having a budget plan. List down your monthly income and deduct from it your monthly expenses and needs. As much as possible, you must create an itemized list of your monthly expenses to produce an accurate estimation of how much you are really spending on your needs. This way, you will be able to determine how much emergency fund you can accomplish every month.

Set a fixed monthly savings amount

To simplify your savings goals, you can also consider the 50-30-20 approach, wherein half of your paycheck is intended for your monthly needs, whereas the 30 percent can be used for your wants. It would be best to not max out the 30 percent though. The excess amount must go to your savings. And finally, the remaining 20 percent must go to goal of building an emergency fund, which ideally should equate to six months' worth of your living expenses. You can also use an emergency fund calculator online if you're not sure what should be your initial emergency fund amount.

Make adjustments as necessary

If you get a salary increase or a bonus, balance it by spending a portion to fulfill your wants and spoil yourself, while the remaining amount should go to your emergency fund in order to attain your emergency fund goal sooner rather than later.

Where to put your emergency fund?

Now that you have established the goal to save money every month for your emergency fund, the next best step would be to decide where to put your emergency fund. And let's be honest, the worst place to keep your emergency money would be at home! It could be lost, damaged, and end up being spent because it's just there in your cabinet, luring you to make your next unplanned purchase.

As such, there are top three options you can keep and maintain your emergency fund, namely:

Traditional Bank Account

The most familiar option to put your emergency fund is through a traditional savings or checking account. Besides, it's the easiest and most convenient way to store your money securely. In the event of an economic emergency, you can conveniently access your funds through either an ATM or via mobile banking.

High-Yield Savings Account

High-yield savings accounts are better than their traditional counterparts since they earn higher interest rates. It's also accessible, which is perfect for emergency situations. Despite the modest amount you can earn with this savings type, it remains that this is a convenient method of maintaining an emergency fund while earning from it.

Money Market Fund

If you want to grow your money without engaging in high-risk financial ventures, investing it in a money market fund is a smart choice. It's a low-risk and highly liquid investment scheme that will securely store your money and potentially earn interest in the process. Meanwhile, other investment ventures that you should not entrust your emergency fund include mutual funds, the stock market, unit investment trust fund, and life insurance. Your emergency fund needs to be accessible, and those mentioned are not your best bet for this purpose.

Aside from becoming your financial safety net for unexpected expenses, you can also allot a separate savings account for your home downpayment if you're also planning to buy an affordable house and lot for sale. The higher the amount you can save, the lower your future monthly amortization.

And if your top two considerations in hunting for the perfect home investment are quality and affordability, then Lumina Homes is doubtless the right housing brand for your future house and lot in the Philippines. Our affordable house and lot provisions are complemented with quality perks and amenities, as well convenience through proximity to schools, grocery stores, hospitals, leisure and tourist spots, local government offices, and accessible modes of public transportation.

Invest in comfort, convenience, and quality for your future home. Get in touch with an accredited Lumina seller today, and rest assured that your inquiries will be attended to by an available representative.