Thursday, June 4, 2015

The importance of an Emergency Fund and how it helped my family

When i was young and free with no major responsibilities, I haven't really thought of saving for the rainy days. My mantra was: live for the present. 

I admit, I am really a spender during my younger days. Though I'm aware of the importance of saving, I keep delaying setting aside a portion of my income because every payday, there's always something I have to spend my money on. That was the state of my finances.

Admit it or not, we Filipinos have a bad habit called the maƱana habit, where we decide to do things at a later time. And, I'm guilty of having that. What we don't realize is that the best time to act is NOW. And because of the recent changes in my life, I have come to strongly believe that procrastination will get me nowhere.


I came to know the term Emergency Fund at a point where I suddenly realized that after all the hard work I've put in my career, I am going nowhere in terms of my finances. It's when I learned that the first step to financial stability is setting up an emergency fund.


What is an emergency fund?
Through research and some mentoring from experts, I learned that ideally, an emergency fund should be equal to 3 - 6 months worth of your living expenses (which may include Food and Utility bills, depending on your lifestyle). It should sustain you and keep you away from piling up debt when financial emergencies or challenges suddenly strike, such as sudden loss of your job/source of income or a medical emergency. These are items/situations which demand immediate financial attention.


Our learning experience
But even after learning that, I still wasn't able to really keep a fair amount. Sure, I had some savings. But, it's still wasn't enough to sustain me for that period of time should my finances be shaken. It's when I became a mother and started building a family of my own that I have to push myself hard and go through a painful form of discipline to build an emergency fund account.

Me and my husband have decided to put our emergency fund in a passbook savings account. Though an ATM savings account is more convenient and accessible, we wanted to keep away from tapping it for impulsive or minor day to day expenses. 

Last year, we have personally experienced how important it is to keep an emergency fund and felt very relieved and thankful that we have one when our little man, Kodee, acquired dengue. He was just 10 months old.

It was a very painful and emotional time for us that all we could think of is for him to be cured as soon as possible. You can just imagine how stressed we are at that time. We all heard those painful stories of a loved one's loss because of dengue. Of course, we don't want that to happen to our precious little man.

Good thing that money matters did not create a concern that time and didn't add to our stress since we have a fund that we used to pay our bills, prior laboratory exams and other expenses we incurred while we're looking after him in the hospital (such as transportation, food, etc). We were able to have him admitted in a good hospital with reliable physicians, which has made us more at ease. Having not to think where to get that money made us focus more on what we can do to make Kodee well as soon as possible.

Though it was unfortunate for Kodee to get sick and put his life at risk at a very young age, that incident has further made us realize how important it is to have a solid financial foundation.


What we can all learn from our experience
Not all of our hospital bill was covered by our health insurance. So, our emergency fund definitely saved us from borrowing to cover our remaining expenses.

Even if you have a health care insurance to cover your hospital bills, an emergency fund can still definitely help. There may be miscellaneous expenses that may come with that situation such as food, etc., as mentioned above.

Of course, we would never wish for someone in our family to be ill or you lose your job. But, we never really know what might happen in the future. Life is full of uncertainties. As much as possible, we have to prepare for those.

So that when you or someone in your family needs immediate medical attention, you will not end up in debt and you could easily give your loved ones appropriate medical attention. It could eliminate more stress.

So that when you suddenly lose your job, you can buy time to look for another job or other source of income. You have to realize that even if this happens, you have bills to pay and other financial obligations to fulfill. If you have an emergency fund, you are still able to do that even in a certain period of time.

If you still don't have one, I would advise that you create a bank savings account now for your emergency fund. Bear in mind that you need to easily access the fund as this is for immediate use (the time when an emergency situation happens). Further, you must exercise utmost discipline not to use it other than for its purpose.

You don't delay the important things in life. Therefore, start saving for your emergency fund. You can start by setting aside a fixed amount regularly and build from it. Create a savings plan and start your way to being financially healthy.


Note: I am not a financial expert and do not claim to be. This post is based on research, mentoring, and my own experience. For a more sound financial advise, please reach out to any registered and professional financial advisers.