Why We Need an Emergency Fund

Emergencies happen. Whether we like it or not there will always be some kind of emergency that will happen when we least expect it, and if we’re not prepared for it – disaster.

I remember during partner’s training at IMG (International Marketing Group), one of the leading companies when it comes to financial literacy, there was a simple presentation about emergencies and how the lack of preparedness leads to a crisis. It went something like this.

“When we get sick unexpectedly, we need Cash, and in the absence of cash, we run to Relatives or Friends which will result to Indebtedness. Fighting for our lives we are forced to Sell any and all assets. With not enough cash, there isn’t enough care and concern and we feel Ignored. Resulting to Suffering.”

In the house of the wise are stores of choice food and oil, but a foolish man devours all he has. (Prov. 21:20)

It’s a very simple message, but the story it tells is one that is all too familiar for most Filipinos. How many times have we heard of people who encountered a medical emergency whose family suffered because they didn’t have any funds to pay for the expenses after the breadwinner lost his job due to prolonged illness? Or how about the case of the father who lost his job after some cost-cutting by the company he was working for resulted to being laid-off, months of no income, eviction and indebtedness? Not a happy story right? This is exactly why an Emergency Fund is a MUST, and not something that should be postponed, or left as a mere thought or wish.

Having an Emergency Fund allows us to have a buffer fund in the event of a medical emergency, or have some extra money to pay for repairs after a car accident, or fix that broken roof after a major tropical storm without the need to borrow from SSS, the bank or our friends. Call it a financial safety net if you will. In case of a job loss, having enough emergency fund will also allow us to survive for at least 3-6 months while we look for a job without the need to use our credit card, or borrow from loan sharks.

So how much do we really need for an Emergency Fund? For Single people, having at least 3 months of your monthly expenses should be fine but, if you’re married or you have dependents who rely on you, then you should have at least 6 months worth of monthly expenses. Take note, this does not include extras for your monthly movie dates or dining out. This is just the bare minimum of your monthly expenses. If you can make it 3-6 months of your actual salary, then even better.


Now when it comes to building up your Emergency Fund, you don’t have to set aside 3-6 months worth of your expenses in one go. That’s just not feasible unless you actually have that much cash that you can just set aside immediately. For those of you like me, who are only starting and still relying mostly on your monthly salary, what you can do is to set aside a portion of your salary for your Emergency Fund, and just build it up every time you get your salary or whenever you have any extra savings. Baby steps. What’s important is that you develop the habit and the discipline to set aside some money for the “rainy days”.

Having enough emergency fund not only softens the damage to your budget during an emergency, it also gives you the peace of mind knowing that even if you lose your job tomorrow, or a storm blows away the roof of your house back in the Philippines, you will still be able to survive, and stay afloat financially.


Got questions? Feel free to send us a message.



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