An Emergency fund is an account or simply a stash of money set aside to cover any unexpected events such as sudden hospitalization of a family member, a busted tire, job loss etc.. These can be costly and can greatly hurt your finances. So better safe than sorry, right?
I’m sure many of us know about this and yet how many of us have an emergency fund? I’m not an exception to this as I am still halfway through building my own. But, what I’m about to share to you are effective ways or tips that I’ve been practicing for quite some time now.
Before you start stacking up money, you have to know first how much you need to save. As a rule of thumb, it should be at least 6 months of your gross salary. If you’re earning Php 15,000 a month, then you need to save Php 90,000 for your Emergency fund. How about freelance individuals who don’t earn a fixed income? One of my favorite financial bloggers, Mr. Fitz Villafuerte, created a very specific formula to calculate the amount that you should have. Click here to read the article.
Now that you already have the answer to your first question, the next question is how to save quickly for it? I mean you don’t really know when an emergency might come up. Our goal is to build our emergency fund as fast as possible to avoid any surprises and like Mr. Fitz said, it’s your SWAN stash, money that lets you Sleep-Well-At-Night.
1. Open a Passbook Savings Account
Whenever my account reaches a certain amount of money in it, for whatever reason I become very excited to spend it and I usually end up doing so. To save yourself from the agony, I suggest you put your money where you can’t easily access it. BDO always has long lines so it can discourage you from withdrawing unless you really need it. If you have ATM, hide it somewhere safe from you.
2. Pay Yourself First
This means that the moment you receive your income, subtract your savings and put it in your passbook account. No excuses. No buts and ifs.
3. Don’t Uber unless it’s Really Necessary
I have a friend who uses Uber almost everyday to go to work. Her monthly bill? More or less Php 5,000.00. If you’re DEAD serious about growing your emergency fund, then this will entail some sacrifices from your part. Get up early to avoid traffic, load up your MRT-LRT cards to skip long lines, commute or carpool with co-workers, or live near your work area. Be frugally creative.
4. Take the “How Low Can You Go?” Challenge
Do you spend at least Php 2,000.00 weekly? Try cutting it first by 20%, then 30%, 40% and so on. Challenge yourself to save more and cut your spending. You can take these small steps to start with:
- Create a budget and stick to it
- Bring your own water everywhere – Bottled water costs around Php 10-25, sayang din yun hehe!
- Prepare and bring your own lunch at work
- Do your grocery with a full stomach
- Learn to say “no”
- Leave your credit cards at home
- Explore doing activities that don’t require much money. My personal favorite is sleeping over at a friend’s house.
- Consider bed-spacing with trusted friends if you’re renting an apartment
The list can go a long way. Again, your only limit is your imagination.
5. Pay off Your Debt Using the Snowball Method
Another one of my favorite financial bloggers Dra. Pinky, shares a very effective way in paying down your debt which she calls the Snowball Method. Just imagine if you can free yourself from that Php 5,000-10,000 installment payments that go to your loans and credit cards. Such amount can be added to your Emergency fund or for investing.
Click here to read her article.
6. Li-low on Facebook or other Social Media Sites
You may not notice it but some spending decisions you committed weeks or months ago may have been “probably” influenced by relentlessly immersing yourself, stalking every update of your friends’ highlight reels. Uy, peer pressure. Or you saw your favorite online shop having a madness sale. Take a break from social media and focus on your goal. Stir away from any possible distractions or temptations. Like what one of my rich friends used to say, “Huwag puro dating, tapos wala namang datung.” Ouch ha, sakit naman bes.
7. Evaluate your Monthly Subscriptions
Gym membership? Postpaid plan? Cable TV? Netflix? Decide which ones to continue or to cut.
8. Celebrate Small Success
Divide your goals into bite-size portions. Say if you’re aiming to save Php 90,000 in 12 months’ time, every time you successfully save Php 7,500 per month, reward yourself. That way you don’t deprive yourself and you’re encouraging the habit by positive reinforcement. Talk about classic conditioning, eh?
9. Plan Ahead for Major Expenses
If we can delay or postpone travels or any major expenses like buying a car or house, then do so. But if it can’t be helped, just refrain from any impulsive buying and plan ahead of time so that you can adjust your budget. Remember the reason why we’re building our SWAN stash, to Sleep-Well-At-Night.
10. Increase Your Income
Find other ways to earn extra and add it to your Emergency Fund. As soon as you secure your fund, you can use the excess money to start investing. A good way is to teach online through Rarejob. Click on my referral link to register and start growing your SWAN stash. (Okay ba sa segway?)
11. Observe the 30-day Rule
Whenever you plan on buying something big or expensive, delay the purchase for about 30 days. If after that you still want to buy it, then go on and do so. I find this strategy effective because it gives a person ample time do some research, and make more reasonable choices. Impulsive buying is mainly driven by emotions such as fear and greed and often results to buyer’s remorse afterward. By following this rule, we avoid regrets and we become masters of our emotions.
12. When You See Someone Becoming Successful, Bless Them
Let me end this post with a short anecdote: The Tale of Mr. Bless and Mr. Jealousy
Mr. Bless and Mr. Jealousy recently became Facebook friends with their high school barkada, Mr. Hardwork. As soon as Mr. Hardwork accepted the requests of the 2, they immediately browsed his timeline to see how he’s been. They found out that Mr. Hardwork just bought a car and house with his hard earned money and that he’s been extremely doing well.
Mr. Jealousy thought to himself:
-“Ang swerte naman nito boy! Mas matalino naman ako dito di hamak. Nagloan ‘to panigurado. Sa mahal ng bilihin ngayon, hindi ka basta-basta makakabili ng bahay at kotse no! (Oh man, he’s lucky! But I’m way smarter than him. I’m sure he loaned those from the bank and with how expensive things nowadays, it’ll be really difficult to buy a house and car.)”
The next day, Mr. Jealousy visited the bank to inquire about auto-loans.
On the other hand, when Mr. Bless saw how successful Mr. Hardwork has become, he said to himself:
-“Ang galing naman ni parekoy. Nakakamotivate tuloy mag-ipon lalo. Alam kong pinaghirapan n’ya yun. High school palang kami masipag at madiskarte na talaga sya. Bless you, bro. Darating din ako d’yan. Magsusumikap din ako. (Wow, my friend’s great! I’m getting more motivated to save. I know that he worked hard to achieve those. Even during our high school days, he was already hard working and strategic. Bless you, brother. I’ll get there too. I will persevere.)”
-The next day, Mr. Bless found more inspiration to work for his dreams.
What’s your opinion on this? I’d love to know what you think.
May all our dreams come true! Until next time. ♥