Securing your finances for the future involves different goals. Your immediate savings are often for short-term goals, while investments and insurance are for goals that could be years or even decades away.
Still, no matter what type of goal you are working toward, there is one type of fund that is essential in making the goals a reality: an emergency fund.
“I think one of the important things in life, even before thinking about a retirement fund or plan, is probably having an emergency fund,” said Mr. Mario Miranda, SVP and Head of BPI Asset Management, in an interview about financial planning for Filipinos.
“People should be thinking about having a buffer, a cushion, and some amount of money for emergencies.”
Emergency funds go a long way toward complimenting longer-term goals because they help shield you from taking on debt and the interest charges that come with it. Without that buffer, expenses arising from unexpected events will often have to be settled through credit cards, high-interest short term loans, and other credit sources that could make the expenses balloon over time.
How much to save up for emergency funds?
“This would be about 3-6 months worth of your salary,” said Mr. Miranda.
“If someone is making 10,000, you should probably set aside 1,000 for retirement, but simultaneously, you should force yourself to set aside a little bit more. Maybe two thousand, three thousand, so that you can have three months worth of salary to be a buffer for emergencies.”
While saving up for emergency funds may mean delaying the start of your own savings or investment funds, they can more than make up for this delay in many ways.
Without emergency funds, you may have to prematurely redeem investments before their maturity period expires, resulting in higher fees and penalties. Worse, for those that have to resort to selling assets to pay for the unforeseen expenses, the urgency often means that you are at the mercy of lower offers.
Simply put, emergency funds put you in a position of strength knowing that you have the funds to take care of any unplanned expenses. Emergency funds also protect your long-term goals by ensuring that you won’t ever have to touch or liquidate your investments before your own target date.
Start your own emergency fund today. With savings products like BPI Save Up, it’s easy to build up your own fund. BPI Save Up allows you to automatically transfer a portion of your ATM Account to your Save Up account each month. Visit your nearest BPI branch today and work toward your emergency fund.
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The views expressed in this report reflect the writer's personal views and not necessarily the Bank of the Philippine Islands'. Furthermore, no part of any of the writer's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the writer in this report.