Emergency fund vs. savings: what's the difference?

When it comes to your finances, it’s important to be organized. One way to do that is knowing the difference between savings and an emergency fund.

Emergency funds vs. savings

Savings is the money that you set aside for a variety of purposes. It can be for a particular goal, like a vacation or a new car, or just for the sake of saving. Emergency funds on the other hand are what you set aside in case of emergency, as the name suggests. It’s money ready to be spent should a problem come up. Both emergency funds and savings can help you in case of an emergency and having only one of the two might leave you penniless if an emergency takes place. That’s why it’s important to have both savings and emergency funds so you’ll have a cushion to fall back on if something unexpected comes up.

Where can I use my emergency fund?

Your emergency fund is for times of unexpected high expenses or major financial change. Some examples of when you might need to use your emergency fund are:

• You lose your job and need to cover living expenses while you find a new one
• You have a medical emergency
• Your car breaks down and you need to repair it
• You need to make a last-minute travel plan (such as for the death of a loved one)
• Your home gets damaged in a storm or fire

It’s important to establish what you consider an emergency and what isn’t, so you don’t get tempted to justify miscellaneous expenses as emergency expenses.

Why do I need to know the difference between savings vs. an emergency fund?

You need to know the difference between an emergency fund and savings because although they are similar, they serve very different functions. An emergency fund is for unexpected expenses, while savings are for specific goals. By knowing the difference, you can better manage your finances and be prepared for anything that comes up.

So, which one should you focus on first: savings vs. emergency fund?

While it might look as simple as choosing between the two, the truth has many more layers. So it really depends on your situation and status. If you have debt you need to take care of such as unpaid credit card bills, that takes priority. Once you’re done with that, or if you don’t have any to begin with, you can start saving or building an emergency fund. It doesn’t really matter which of the two you have first. What matters is that you start on at least one of them. You can also start both at the same time, putting a small amount towards your savings and emergency fund each month. A little amount saved per payday is better than none. By doing so, you’ll be prepared for whatever might come your way financially.

Where do I put my emergency fund?

Knowing where to keep your emergency fund is almost as important as building one. There are two main places you can put your emergency fund. You could put it in a savings account, or you could just hide the cash at home. Both ways mean you’ll be able to access your money when you need it. But be extra careful when keeping the cash at home with you because it can be stolen. It can also be too easy for you to access, which may lead to you spending it for non-emergencies.

Where do I put my savings?

You have more options when it comes to keeping your savings secure. You can choose from a savings account, a money market account, or a time deposit. These are all good options because they offer stability and liquidity. That means you’ll be able to access your money when you need it, and you won’t have to worry so much about the value fluctuating.

How do I start saving?

The best way to start saving is to make it a habit. If you can set aside 10-20% of your income each month, you’ll be on your way to having a savings account and an emergency fund. But if that’s too difficult, start small and increase how much you save as you get more comfortable. The most important thing is to just get started!

How do I start building an emergency fund?

Most experts recommend that you have three to six months of living expenses saved up in your emergency fund. This way, if you lose your job or have a major financial change, you’ll have enough money to cover your costs until you can get back on your feet.

How do I start building an emergency fund?

Most experts recommend that you have three to six months of living expenses saved up in your emergency fund This way, if you lose your job or have a major financial change, you’ll have enough money to cover your costs until you can get back on your feet.

Building an emergency fund can seem impossible, but this is far from the truth. If you don’t have an emergency fund, start by setting aside money each week until you reach your goal. For example, if you want to have at least PHP 10,000 saved up in three months, you’ll need to set aside at least PHP 850 per week. Once you reach your goal, you can continue to add to your emergency fund until you have three to six months of living expenses saved up.

Don’t feel pressured to build your emergency fund all at once. You can start small and work your way up as your salary increases. It can even be as small as PHP 100 a week. The important thing is consistency.

Protect yourself financially by starting your savings and emergency fund. Metrobank is committed to ensuring your hard-earned money stays where it should be – safely in your bank account. Open a Metrobank Savings Account for your savings and emergency fund today.