Imagine this for a second, your alarm woke you up as usual. You did your regular prep routine. Afterward, you went straight to the shower and used your new fragrant organic shampoo and bath gel. You brushed your teeth and moisturized your face and applied milk lotion to your body.
You went back to your room to dress up. As soon as you open your closet, a smile appeared on your face as you saw the unopened paper bags of newly bought fashionable clothes that went on sale just last weekend. It felt like hitting the jackpot when you went shopping that weekend because you got these branded items for 50% off. You picked and wore one of those new clothes and stared at yourself in the mirror to see how perfect the fit was.
You went to your kitchen and ate your usual daily breakfast. Drank your favorite coffee blend and went to work 15 minutes earlier than your schedule. After a long-hour commute via a combination of trains, buses, and what have you, you finally arrived at your office. You went straight to your cubicle just to be called to a meeting after 5 minutes.
The company just announced that the income generated this year did not meet its target. They are looking to streamline their business to be able to cut costs and save money. After the meeting, your boss talked to you to inform you that your job will be made redundant. And just like that, you lost your job.
Suddenly, a lot of things started bombarding your head. You suddenly remembered the piling credit card bills. You are worried about the fixed amount of money you send to your family on a monthly basis. How are you going to pay for your rent, your utility bills, your upcoming trip to an exotic island (which of course you also paid for using your credit card), etc? How will you pay for all of those in the coming months?
This is the worst nightmare for all of us. And even though we hear similar stories like this happening every now and then, I am wondering why a lot of people are still not preparing themselves for an event like this.
This is one of the primary reasons why each and every one of us should have an Emergency Fund.
What is an Emergency Fund?
An emergency fund is usually an amount of money equivalent to three to six months of your expenses. It can be more if you want. Some people have a year’s worth of emergency fund.
How much should your emergency fund be? For example, if your rent, utility bills, grocery bills, etc amounts to P20,000.00 per month, then you should have at least P60,000.00 (three months) or P120,000.00 (six months) of cash stashed away in a very accessible savings deposit.
The idea is, if you suddenly encounter a huge financial emergency such as losing your job, then you will have enough money that could help you stay afloat until you find your next employment.
Reasons Why You Need an Emergency Fund
Losing Your Job
This is one of the main reasons why you and I should have an emergency fund. With the continuous outsourcing of jobs here and there and with the constant development of technology, it feels like we do not know when our employments will cease to exist. We all know that this fact is beyond our control. This should help us be mentally prepared in pooling our emergency fund and in looking for alternative sources of income as well.
You or a Family Member Suddenly Gets Ill and it won’t be covered by your HMO
Some HMO does not cover 100% of your hospital bills. The coverage depends on the health plan that your employer bought for you. A lot of times, HMO companies do not cover pre-existing illnesses as well. During this time, it would be best if you have a safe amount of money in your bank account that you can use to pay your hospital bills.
A Family Member Passes Away
I’m not being morbid, but, death is something that we all know will happen to all of us. The ironic thing though is that, even if it’s a fact of life, not everyone prepares for it. If a family member suddenly passes away then the usual norm would be, the relatives will pool a certain amount of money to help the family of the deceased minimize or overcome the financial aspect of this situation.
However, if we will all start saving up for an emergency fund, then we could all minimize the financial stress that we might go through because of this.
A Once in a Lifetime Bargain Suddenly Comes Up
Once in a blue moon, I often hear great deals on real estate. However, by the time I hear about it, it’s already been bought by someone else. Usually, amazing real estate deals happen when someone wants to liquidate or sell a property for a very low price (often way below the market price) because they need the money to pay hospital bills. Sometimes it could be because they are migrating to another country.
Instances like this make me always wish that I have emergency money that I could use to purchase a rare bargain like this.
You Encounter an Accident that Left you Unable to Work for a Couple of Months
Accidents that temporarily disable a person do happen. One of my colleagues at work got into a vehicular accident which made him stay in the hospital for a couple of days. He had multiple stitches and fractures on different parts of his body. The doctor advised that he rest for at least three months.
Filing for all the insurance usually takes some time and luckily he had enough savings that could cover for the expenses of his family while his not working.
This kind of situation is already stressful and the stress gets magnified by the lack of financial resources that could help us address this issue. If you have an emergency fund, you could easily use that cash to resolve these concerns. If you don’t have an emergency fund yet, then it’s really a good time to build one now.
Do you have additional tips and suggestions? Feel free to share your thoughts on the comment section below.