What is Emergency Fund?

Recently I met my old friend Alvin who has been plagued with problems. He’s been restless for the past weeks because of the financial constraints that he’s having. The daily expenses are piling up and he just cannot cope with it. It’s stressful and emotionally draining.

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The financial strains help to add wrinkles in his face which are quite noticeable. Also, there is a myth that most OFWs are losing their hair but for him, it looks natural. It all started when they celebrated his son’s first birthday. Imagine that, a birthday taking him off the right financial direction!

He said he is too busy with his work and forgot that it’s his son’s birthday already. His wife suggested taking the kid and their neighbors to Jollibee and he agreed. The kids were happy once the party started while he foots the bill.

After a week, the credit card and electricity bill arrived. He frowned upon looking at the figures of the bill. He realized that he needs to cover the bills that have just arrived. He is out of his budget and had since live and thrive with debt every month.

 The story is familiar among us. While occasional expenses will always comes around, the unpreparedness and hazy decision making has caught him to where he is right now financially. 1^st birthday, 7^th birthday, graduation, 1^st communion, debut, etc. are events worthy of celebration. These moments are what we treasure as a family. To celebrate the achievements of our families whether it is a lunch on the beach, a dinner on Max restaurant or spaghetti in the house helps in establishing great relationship within the family. As such, these events are indispensable. As Eleanor Roosevelt said, “The most important thing in any relationship is not what you get but what you give... In any case, the giving of love is an education in itself”.

However as the financial planner of the family, you need to anticipate the events and the costs associated with it so that you can plan your budgets. You need to budget so that you can give more in the future.

Obviously, Alvin needs a repair in his financials or perhaps an overhaul. But how is he going to fix it?

Emergency Fund

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This is a very important fund. Maybe you have savings every month but when an emergency comes in, all are gone. And you are back to   square one again. You save again, an emergency comes in (e.g. the roof is leaking, tuition fees, children school projects, relatives in the hospital, etc) and you go back to square one again. It's a cycle. It's a vicious cycle that if you won't do anything, nothing will change. So set aside an emergency fund so that when the emergency comes in, your savings and investments are not touched. You have a fund that will take care of them. If this fund reaches 500% of your salary  you can invest the remaining 50% in the stock market.

Personally, I have several ways of putting my emergency fund outside of our house. I put my first emergency funds in National Bonds. You can buy it at a minimum of 100 dirham. I’m buying every month and accumulating until it reaches my desire amount. In case of emergency, we always have something to pull off. National Bonds have a lock in period of 30 days but after that you can redeem your bonds anytime. They are having a weekly draw and they pay the bondholders a certain interest every year. Not bad for an emergency fund. Who knows you might be the next millionaire.

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Another way is to buy gold at Gold Souk. You can sell the gold anytime to the shop and if you are lucky when the price of gold shoots up, you are entitled to profit from it.

My emergency fund is currently in cash. Sometimes I wonder if my loved ones have a secret eye overarching to where my emergency funds are. You call it mental telepathy. The moment you are about to celebrate your emergency fund reaching your desired amount, your loved ones start to call. Here are the common ones.

·        “The roof is leaking we need money”.

·        “The tuition fee increased and the money you are sending is not enough”.

·        “The basic food and commodities prices have risen, you need to send more”.

·        “Kuya, I have a project and I need 5,000 pesos”

·        “Dad, we need to go to Tagaytay for our field trip”.

·        “Mom, I’m going out only once a year, can you give me allowance to go to Bohol”.

·        “Your papa is going to be a ninong to Pareng Igme’s son and Pareng Reden’s daughter.”

·        “Fiesta is approaching and our mayor will come in our house. We need to celebrate big this time.”

Emergency Fund is necessary to maintain your sanity.