I learned to save for hard times before I fully grasped the concept of an emergency fund. When I was still living in Cebu, I was so paranoid of running out of money and not having anyone to turn to if that happens that I keep a stash inside my luggage under the bed, good enough to get me through the month or buy me a plane ticket for home.
Eventually, I graduated from keeping my savings under the bed to actually opening a separate bank account from my Payroll. This helped me better manage my finances, as I avoided the temptation to dip into my savings. Saving, as you all know, takes tremendous discipline.
Now saving for emergencies has become second nature to me. I’ve successfully built back the emergency fund that I put into good use February last year.
You might be wondering what an emergency fund is, if you haven’t come across the term yet.
What is an Emergency Fund?
True to its name, an emergency fund is money you save for unexpected circumstances.
You might get sick and use up all your paid sick leaves. You might suddenly find yourself out of a job because your company went bankrupt. There might be one major change in your life that you need instant cash for.
If you don’t have an emergency fund, you will end up borrowing money to sustain those needs. An emergency fund will allow you to survive the next few months or until you can find another employer. It can pay for unanticipated medical costs that would otherwise eat up your budget for living expenses.
Ideally, an emergency fund should be able to cover at least three to six months of living expenses. Some even stretch their goal and save up enough to last them through a year. Ultimately, the amount of your emergency fund depends on your commitment to save and your personal needs.
Often considered as a foundation of good personal finance, an emergency fund is imperative in an increasingly uncertain future. It can save your life and spare you from piling debts. It is a cash cushion you can dip your hand into when an emergency happens.
Times When My Emergency Fund Came to the Rescue
If you want to prepare for a more secure future, you will want to have an emergency fund. I know for certain how useful having one is, having turned to my emergency fund several times in my life.
When I had to replace my old laptop
My first ever laptop served me for five happy years before calling it a day. I bought it secondhand because that was what I can afford with my meager salary as a copywriter in an independent publishing company. Thankfully, it worked well. By well, I meant it helped me get things done. I can watch movies and transfer photos from my phone when I need to free up some space.
Eventually, I used my good old laptop for my freelance gigs. I wrote content for an SEO company on my spare time. It took me longer to write one full article because the laptop was getting slower and slower. I decided to get a new one when it was about to give up. I did not get to save for it because it was quite unexpected.
Thanks to my emergency fund, I was able to bag a laptop that was on sale in cash, allowing me to save at least 10,000php. My other option back then was to get one through Home Credit which would have burdened me with significant interest every month. I was able to replenish the fund a few months down the road because I had a new laptop that worked faster.
When I had to move into a new apartment
I lived in my old boarding house in Cebu for almost seven years. It was the first place I rented out when I moved away from home. That house was strategically located in the center of the city, allowing me to go to any point in just one ride (I take the public transpo). Groceries and malls are often just a walking distance from that place.
But then one day, my kind landlord talked to me. He asked me if I can find another place in the city because the room I was using will be used by his sister’s family next door when they will rebuild their house. They have nowhere to go, too.
I did not see it coming so I was anxious for a few days. A huge part of me did not want to leave that house – it was my comfort zone. I don’t want to go through another period of adjustment. Plus, my rent there was quite cheap and the neighborhood was safe.
I was given a month to look for a new place. The district where I worked had a lot of spaces and apartment for rent, but they were shockingly expensive. It was double the current amount I was paying. Thankfully, I found one close to work. I can walk to and from the office and avoid the dreadful rush hour traffic.
I had to cough up more than 20,000php for the new apartment, including an advanced payment and two months deposit. It was a huge amount for me back then. Had I not had my reliable emergency fund, I would have been forced to borrow from friends (just thinking about it made me shudder) or settle for a bed space that was too expensive for its quality.
When I had to move back home
The pandemic wreaked havoc on most people’s lives. I was not spared. The cost of living in the city where I work has taken its toll on me. It was impossible for me to sustain my full-time job. I had to take on three freelance writing gigs to help me get through every month.
That was the time when my unemployed sister lived with me and we adopted two ginger cats. Our grocery bill every month was exorbitant. I also need to send money back home to our elderly parents. It was impossible for me to save, even when I received a pay raise at work.
The best solution I can think of was to move back home in the province. We were working from home so there was no problem in that regard. My boss was too kind to allow me to do just that, even paying for our fare.
My emergency fund saved me yet again. It was enough to cover the very costly shipping of our stuff (nine years’ worth of accumulated things). I had to pay for a trucking service and the boat fare. The move also required us to process paperwork, including our cats’ travel permits. I had to shell out some for their veterinary check-up, anti-rabies vaccine, and travel cages.
When we reached home, I had to pay for the internet installment. I also needed to repair the window in our old room which I will be using as my home office.
All of those expenses added up and it would have gotten me in trouble had I not saved for an emergency fund.
So yes, an emergency fund is a lifesaver. You need to build one if you haven’t yet. That is the best advice I can give to young people today. Even if you are blessed with a high-paying job and still enjoy the support of your parents, unexpected happenings are quite inevitable. You need a cushion to soften the blow.