Lesson #1: Emergency Fund (Back up Plan)

Hello Fellow Professionals,

Its been awhile.
I hope everyone is doing great and optimistic with your Financial Portfolios.

Let's discuss the foundation of Financial Planning.

What is emergency fund?

Its a fund that is normally being used for unexpected events in ones life such as losing a job, unexpected family matters, etc. It is one of most important aspect of Financial Planning and also the most liquid asset class in your financial portfolio.

Please be informed that Emergency Fund is NOT fully used for hospitalisations, accidents, critical illness, disability or death. These uncertainties are being managed differently and separately.

Transparently, in my line of profession as a Financial Consultant, with so many people I talked with, Im no longer surprise to hear from many people even from Filipino Overseas Professional (accountants, engineers, managers, nurses, etc) these following answers when I ask them if they have or aware of the Emergency Fund...

These are the common answers:

"Oh, Emergency Fund? What is that?" -You need it I assure you!
"I don't have one. I have so much obligation to my family." -The more obligation the more important it is
"Im paying many investments now." -That is why you need to have one!

How to make an Emergency Fund?

Accumulating your Emergency fund is a real challenge specially to people whose hobby is spending.(travel, shopping, etc).
Computing your fund also requires self confidence about an estimation of how many months do you need to look for another job should you lose your current one.

If you are Single, the normal month range is 3-6months
For married couple with kids is 6-12months.

It depends on your comfort level but follow the range guidelines above. Please do not make it more than one year as it will be saved only in a normal Savings Account and can only earn a very low interest rate of below 1% per year while inflation is set at average 4%. This fund is meant not to earn interest but only a back up for contingencies.
Most of you might be thinking why normal Savings Account?
It must be easy to withdraw should there be any emergency events. This is not meant to be used for sale event in EXPOs, IT Sales, etc... PLEASE! PLEASE! PLEASE!

Accumulating your Emergency Fund needs discipline and commitment to a stabilised and strong financial portfolio. You need to save month by month until you reach the desired month range target. The time you have accumulated enough make sure that its not mixed with your normal savings. You need to open a new savings account in other bank. Do not focus on investments if you don't have this and insurance yet. The less you save for this fund, the harder the fall on your Financial Collapse. Below is the sample on how to compute Emergency Fund:

Why is Emergency Fund very Important in our portfolio?

Emergency Fund is one of the most important liquid asset one can have in terms of doing proper financial planning. Its main purpose is to support all your current obligations and lifestyle should a person lose a job unexpectedly.

Imagine yourself losing a job without any Emergency Fund in a situation you are the breadwinner or someone with many financial obligations such as property amortisations, insurance, investments, etc...

What do you think will happen to all your obligations??

It might be wiped out or for some, they borrow big sums just to provide or pay for all the obligations. Should that be the case, you will be in deep trouble financially. 

Please be reminded that failing to plan is a plan to FAIL.

Act now for yourself and family.

If you need assistance or guidance about financial planning basics, I will be glad to share it to you.
Please stay tuned for more Financial Planning Basics soon..

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