How do you start an emergency fund?
Building an emergency fund is one of the first steps in managing your personal finances. How do you build one?
Before you save up for a big purchase like a car or a house, you should consider setting aside money as an emergency fund.
The first question to ask: how big should your emergency fund be? You should consider three months’ worth of living expenses. But if you can do six months, then that is even better.
To define living expenses, let’s do some quick computations:
First, how much do you spend on utilities? If your electricity and water bills add up to around PHP 2,300 every month, round it up to PHP 2,500. If you pay rent, add this as well.
Next, compute how much you spend on food. If you do the groceries, add the amount you spend on groceries each month.
If you eat out a lot, get the average meal cost and multiply it by 90 (three meals a day for 30 days). If you’re on a diet or an intermittent fasting, compute for only two meals a day, then multiply by 60.
Finally, compute how much you spend on transportation. Take your average commute costs and multiply it by 60. This factors in going to work and back for 30 days.
So, the computation for your monthly living expenses may look like this:
(Your utilities and rent rounded up) + (your monthly groceries OR the cost of an average meal x 90 or 60) + (Your average commute cost x 60)
Take all of that and multiply it by three, and the result is now your emergency fund.
Saving for an emergency fund
The amount you come up with might look daunting at first but with discipline, you can achieve it with consistency.
Here’s another way to think about it: Take 10% of your monthly take-home pay and set it aside. It’s up to you whether to do this every payday or at the start of the month.
Avoid doing this at the end of the month because you might be tempted to spend your money instead of setting it aside.
If you’re able to spare more money, you can save up to 20% of your monthly income so you can build your emergency fund sooner. But if it is too much, start with setting aside 10% of your income. The important thing is that you regularly set aside money for a rainy day, as the saying goes.
For more information on how to build an emergency fund and get an AXA protect package when you open a Metrobank account, visit http://metrobank.com.ph/AXA-personal-accident-insurance
Read this Related Story: What is an emergency fund and why do you need it?
