Tips in building emergency fund | Inquirer Business
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Tips in building emergency fund

Question: Hi sir Randell! I attended iCon last year, and I can’t wait for this year’s conference. Since 2015, I’ve been reading a lot about personal finance, and one of the basic lessons I learned is building up an emergency fund. However, no matter how much I read, I still find a hard time growing my savings. Every time I save a portion of my monthly income, a surprise expense comes up, and I dip into my e-fund. Because of that, my emergency fund never seems to grow. What can I do? I wish to build a fund equivalent to my six months’ worth of living expenses by the end of 2016.—Miggy via Facebook

Answer: Hi, Miggy! Thank you for the message. I’d like to answer your question here so more people can read and learn about it. I also look forward to seeing you in May in iCon, and we have lots of surprises in store for you. Going back to your question, yes, six months worth of living expenses would be ideal for an emergency fund.  However, for those who have just started handling their personal finances, six months’ worth is a lot of money. It’s daunting and may feel like you’re never going to reach your target. To make the journey a little easier and less scary, start slow. As they say, ‘slow and steady wins the race.’


Here are five tips to help you build your emergency fund:

Use it only for emergencies


An emergency fund is to be used only for emergencies. Your prized running shoes breaking is not an emergency—unless you are a professional or varsity athlete. An emergency fund is to cover unforeseen expenses, such as medical bills or car repair. To keep building your emergency fund, do not dip into it. Once you put money into your e-fund, treat it as a ‘forgotten fund’ until the need (read: an emergency) arises.

Take baby steps

Start small until you acquire the habit. As with crash diets, where withdrawals are highly likely, you ease yourself into a new routine (in this case, saving) if you start small. Forcing yourself to save 50 percent of your income may ruin your mood and turn you into a Grinch because it feels like a burden rather than blessing; however, if you start small and save 5 percent of your income, it doesn’t create that big of an impact on your expenses (and life in general), and as you end up saving more through the months, you’ll get used to the habit and will be ready to increase the amount you save.

Save first, spend later

“Do not save what is left after spending. Spend what is left after saving.”  It’s one of the most notable quotes on personal finance, said by none other than legendary investor Warren Buffett. If you spend first then save second, you cannot maximize your monthly earnings because more will be going to your expenses rather than savings. By saving first and spending later, chances are you’ll hit your monthly savings target.

Automate your accounts

In relation to the point above, automating your accounts curbs your self-control. You cannot spend money you do not have, and this is a mind trick you can use if you have your bank automatically transfer money from your payroll account to your savings account every payday. Short-term investments, such as money-market UITFs, are more liquid and have no minimum holding period. This means you can store your emergency fund in these short-term investments, and have your bank automatically transfer money from your payroll account to your investment account through their Regular Subscription Plan (BPI) or Easy Investment Plan (BDO).


Increase your income

The fastest way to save more is to earn more. This may require more time and effort but there really is no substitute for hard work. If you’re an employee, you can perform exceptionally well to keep you in the running for promotion or pay raise. If you have a wide network, you can tap your friends and family and earn on the side through freelancing. Use your strength to increase your income. If your photos on your Instagram and Facebook are getting praises, that may mean you have a knack for photography. You can use this skill to cover events such as parties and weddings for a price. This way, you generate income on the side doing what you enjoy and are able to save more for your emergency fund.

To all those planning to or are currently building their emergency funds, the five steps above will get you into the habit of saving, and as a result, enable you to build your emergency funds. Once you have six months’ worth of living expenses covered, you can still use the tips above to cover other aspects of your personal finances, such as growing your investment, paying down debt, or saving for a big-ticket items.

Join me, Marvin Germo, BSP Deputy Governor Diwa Guinigundo, Rex Mendoza, Riena Pama, Dodong Cacanando and Paulo Tibig in iCon2016, an investment conference on May 28, 2016 at the Samsung Hall, SM Aura, Taguig. Visit for details.

Randell Tiongson is a Registered Financial Planner, best-selling author, columnist and speaker of personal finance. Follow him at Facebook, Twitter and Instagram (@randelltiongson). To learn more about budgeting and cash flow management, attend the 53rd Registered Financial Planner (RFP) program this April 30, 2016. To inquire, e-mail [email protected] or text <name><e-mail> <RFP> at 0917-9689774.)

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TAGS: Building, emergency, fund, monthly income, Personal finance, savings
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