6 Steps to Financial Security Series
We are now in the third step to Financial Security, Just want to remind you that first step is increase in cash flow, then debt management, and then today let me discuss the third one which is having an emergency fund.
What is an emergency fund? Emergency fund is equivalent to at least 3 to 6 months of your expenses for bachelor/single and we advise 6 to 12 months for family.
Emergency fund is the fund that you could use in case there are emergency in your home. As an example, sickness, an accident, parent’s need or sibling’s needs. There are times where we cannot really avoid on what is happening in our surroundings.
A good example which is common to Filipinos if if your parents ask for your support, because he was diagnose of having some health problem, would you not give him or her your support? There are times that even we don’t have money we are being forced to borrow money with interest just to give our love ones their needs. What if you have an emergency fund, for sure it will be easy for you to help.
Another scenario, is the surprise retrenchment in your company, suddenly your boss give you a notice that they are implementing a cost cutting measure and you are one of those employee that will receive his last pay check. So what will you do if you have mortgage to pay, a children to feed, and more. Emergency fund could be a big help to you so that you will not resort to a debt with interest.
Emergency Fund is not easy to make, but if you follow the earlier suggestion that we have told you that you have to save 20% of your salary. Within 2 years you will be able to save your emergency fund.
Emergency fund is normally being placed in a low risk and liquid investment. That means you can pull out the money at any moment. Low Risk investment like Special Deposit Account (SDA), Money Market, Time Deposit or more. It is not advisable to put your emergency fund, because you will never know when you will need you r money. Because there is a possibility that you will need it in time when market is down. So it is dangerous to put in stock market.
Our next blog post will discuss about Ensure Proper Protection.
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This is still part of the Financial Security Series