Emergency funds are funds set aside for unplanned expenses, such as medical bills, home repairs, or loss of income. It’s better to use emergency savings to cover unexpected expenses than to use a credit card or high-interest loan.
Why is an Emergency Fund Important?
Emergency funds create a financial buffer that allows you to make ends meet when you need it, instead of relying on credit cards or high-interest loans. If you are heavily in debt, having an emergency fund is especially important because it can help you avoid borrowing more. If you are in a financial crisis, especially for OFWs and migrant Filipinos who lost their job due to the pandemic, emergency savings will provide a safety net until you recover. However, without any emergency savings, you will most likely end up borrowing money from family or loaning in the bank, ignoring your existing payment obligations, or buying high-interest credit cards, all of which will put you in debt. Depleting your resources to pay the remaining debt.
How does an Emergency Fund Work?
The emergency fund is a separate savings account, dedicated to unexpected cash outflows due to uncertain factors, such as sudden loss of income, illness, accidents, or any unforeseen expenses.
How much Money Should I Have in an Emergency Fund?
Experts do recommend keeping three to six months of expenses in the emergency fund, but in some cases more is needed. Some experts recommend using a smaller emergency fund when paying off your debts. If your job is insured and you don’t have many expenses, you may be able to save less money. However, a large fund is needed when it comes to housing or car loans, business debts and long-term unemployment.
Where to put an Emergency Fund?
Bank ATM savings accounts and high-interest savings accounts are two good places to store emergency funds. You need safe and smart options so you can use your funds when you need them. These options make it harder for you to get involved to use your funds in important matters only and you will get some money in return.
How To Build an Emergency Fund
Having an emergency fund is a must. Think of it as a buffer from the ups and downs of your life and prevent you from increasing the debt burden you may already have. The outbreak of the coronavirus has drawn people’s attention to the difference in having an emergency fund during a crisis. You may be infected with a disease that causes expensive medical expenses. We cannot always be prepared for the physical or emotional challenges that life brings to us, but we can be prepared to pay the bills.
Steps on How To Start and Cultivate an Emergency Fund
Establishing an emergency fund takes discipline, time, and some sacrifices, but it can be done. If you’re not sure how to save for an emergency, here are the steps on how to start and cultivate an emergency fund.
List Down Your Monthly Income and Expenses
If you have already read the expense tracking software, just check your list to see what your monthly expenses are. Otherwise, you can use the tracking expenses worksheet or take a piece of paper to record your monthly income and expenses. Be sure to include recurring expenses, such as your rent or mortgage, utilities, and childcare, as well as estimates of other out-of-pocket expenses you can purchase, such as movie tickets, dinner, and clothes wear.
Many Overseas Filipino Workers (OFW) try to save money. This is a sad reality because becoming an OFW is not easy at all. Being one means endless sacrifices, including being away from loved ones and living in a strange environment. But OFWs and migrant Filipinos are prudence and good at saving money. They prefer living in condos and apartments to save money.
Analyze your Emergency Fund Goals
The emergency fund must pay three to six months of actual living expenses. If you think your income is stable, or if you can get home equity or other forms of credit when you need it, you can plan for a lesser amount. If your credit is close to your limit and your income prospects are uncertain, you may want to save more.
OFWs and migrant Filipinos do their best to save money for their loved ones by “ipon” or saving a little percentage of their weekly or monthly salary. OFWs and migrant Filipinos always dream to move to a better place or house where they can enjoy their life.
It takes a long process to generate savings, so it is important to start small and build from there. Some people set a big goal for their emergency fund early on, only to find that it takes longer than expected. Along the way, they will start to feel discouraged and eventually give up completely. It is not going to be easy at first. The important thing is that you take action and start saving, no matter how small, just be consistent. You will reap what you sow.
Separate Savings from Emergency Fund
An emergency fund should be easily accessible and liquid, the recommended tool is usually a savings account. Savings accounts cannot even keep up with inflation and are intended for buying something, which means that in the long run, the emergency fund is a money-losing proposal and for important matters.
The purpose of the emergency fund is to provide enough funds to cover large and unexpected expenses or to prepare you for major financial changes. The purpose of the emergency fund is to eliminate the need to borrow money or maximize the use of credit cards when life becomes financially difficult.
Invest in Real Estate
When you have extra money, think of ways to invest it. Real estate properties such as affordable houses and condos for sale in the Philippines is a great way to start with your investment portfolio. Investing your money will give you more opportunities to increase what you have. However, real estate investment always involves risk, so don’t put all your eggs in one basket. Before you start investing, have an emergency savings fund that can last for several months. This will prevent you from losing everything you have. In addition, please pay attention to your investment. Before investing in a house for sale in the Philippines, be sure to conduct research.
Keep Away From Vices
Vices come in various shapes and sizes, and most of them are unhealthy for your body and wallet. Unfortunately, many OFWs fall into the trap of vices, perhaps smoking, drinking, gambling, or excessive shopping, as a way to cope with loneliness. The good news is that there are other leisure activities: exercising, playing sports, or meeting other Filipinos are some of the activities that can help you. When you take the time to nurture your body and your social life, you will also steer clear of the big costs of illness.
Making Yourself Free From Debts
If you already have debts, pay them back first. Generally, extending the debt will cause you to pay higher interest rates. You want to live a debt-free lifestyle as quickly as possible, so find ways to achieve this goal. Discipline yourself and do not focus on things you want but on things you need.
How do you consistently add to your emergency fund if you still have debts to pay? It’s like you’re saving money, not for emergency use but just to pay your remaining debts. Do not assume to reap at the end of the day if you have this kind of attitude. Know your priorities for you to have direction.
Develop Your Potential Skills
This may seem opposite to your goal, but it’s okay to invest for yourself now and then. Just know what expenses will add value to you. Learn new skills. Participate in seminars and conferences whenever you have the opportunity. Although some may ask you to pay for it, you will get your money back with the skills you have acquired.
Hardworking OFWs are known to be the best in their field of work. Many Filipinos are known to be flexible and skillful. That is why many companies prefer Filipinos to work in their company.
Be Transparent to Family Members
It is normal for OFW to send money to family members back home in the Philippines. Most OFWs do this. However, whether this is an act of generosity or responsibility, it should not prevent you from saving. The most important thing is to help them gain financial knowledge. You will not always be there to guide your spending. Over time, they should learn to budget for the money they receive. Talk to your family until they understand your financial goals. Since you are building an emergency fund for their good and the future.
Stick To Your Budget
Making a budget is essential to any financial plan, and it is also important to review the budget regularly to ensure that your savings and spending needs are in line with your current financial situation. When you check your budget, ask yourself if you can save more.
If you usually allocate 20,000 pesos every month for dining out, see if you can reduce 15,000 pesos and put your saved money into emergency savings. The same is true for other discretionary items, such as allowances for clothing, entertainment, and personal care. All this will help, even if you only cut your budget by 10,000 pesos a month.
Benefits of Having Emergency Fund
The first important benefit of having an emergency fund is that when the remaining money is used to do your things, it can generate valuable interest. The more money you have in your account, the more interest you earn, but the type of account type will also determine the amount of interest you earn. It’s not bad to earn little by little while doing nothing. Placing your money in security and earning.
It avoids spending money on vices and leisure
Vices like smoking and drinking will tempt you and make you off guard of your fund. Find leisure that can satisfy yourself and uncontrolled spending of your money. You might fall into large debts. If you do not have an emergency fund when you arrive at your destination, you will have to resort to credit, which will only increase the cost of such expenses even more. One of the biggest advantages of an emergency fund is that it allows you to pay these expenses without the need for a loan.
Ease of Future
It is said that money cannot buy happiness, but it depends on your definition of happiness. If happiness means tranquility, money is, of course, a factor. Having a strong emergency fund can give you peace of mind that you can manage unforeseen expenses, so you can rest easy. By minimizing financial stress, you can even improve other aspects of your life; the actual value of the emergency fund far exceeds the rand of your account. Not thinking too much of the future whatever problem or calamity you may encounter. You cannot predict when it is going to happen but at least you can prepare.
Having an emergency fund is an important part of having flexible finances. Although they can be excruciating, there are many things you can do to protect yourself and your loved ones from an unexpected financial and economic crisis.
Savings and Emergency Fund Can Be An Advantage To Approve Your Loans
People tend to pay close attention to their credit scores when they start buying a home. OFW investors who wish to buy a home in the Philippines should keep their credit scores in check. While your credit score is one of the most important factors in getting approved for a home loan, it is important to understand that when you apply for a home loan, the lender will generally fully understand your financial situation before deciding whether or not to approve the home loan.
Liquid assets, such as savings, can help you be sure that even if you experience financial setbacks (such as unemployment), you can still repay them. This can lower your risk profile and the interest rate on the loan. Your savings history can also be seen as a sign of good financial management habits.
The Disadvantages of An Emergency Fund
It may not be known to everyone, but there’s also a downside in saving up for an emergency fund. Here are a few drawbacks for OFW investors saving up for an emergency fund.
Fewer Fund for other Financial Goals
As you spend more money on your savings, less money will be available for other financial goals. Creating emergency savings may prevent you from paying off debt or saving for a new home. But it still depends on your financial state on how many funds you can handle and the plan you have set.
Long long time to Harvest Money
The return of investment does not come to you instantly. To earn in the investment you should save money on your chosen bank or process. Consistency is the key for you to reach your target earnings while investing or building an emergency fund.
Overall, it’s still a great idea to save up in case of emergencies. OFWs know how crucial it is to save money because at any moment, their contract might end or they might be laid-off at work.
Talk to the experts in building an emergency fund. Vistaland International, Marketing Inc. is willing to sit down and listen to your needs. Talk to us now!
Vistaland International Marketing, Inc. (VIMI) is the international marketing division of Vista Land. Aiming to provide OFWs and migrant Filipinos a home in the Philippines, VIMI has established long-lasting relationships with brokers and clients around the world.