How To Compute An Emergency Fund Philippines: Creating an emergency fund is one of the foundational steps of money management. Due to the modern world and uncertain times, it’s now more important than ever to build an emergency fund in the Philippines. Still, one of the most common questions about this topic is how to compute an emergency fund in the Philippines?
As this topic is vast and covers many different factors, we will be exploring the full process of building an emergency fund in the Philippines by understanding how to calculate an emergency fund in the Philippines. Additionally, we will explore questions such as; is an emergency fund really necessary, and how much emergency funds should I have as a Filipino.
Table of Contents
1. How To Compute Emergency Fund Philippines
To calculate how much of an emergency fund you will need in the Philippines, first determine your expenses for one month. For a basic emergency fund, times your expenses by 3. For a more secure emergency fund, times this number by 6. 3 & 6 represent the number of months you can survive without additional earnings and is your total emergency fund.
Most financial experts recommend the average person has at least six months of living expenses in an emergency fund. However, there may be scenarios where this is not essential, and we will be speaking about other ways how to compute emergency funds in the Philippines below.
So as a quick example, if after your calculations you determined that your total expenses per month total 18,000 Pesos and you are looking to compute your emergency fund in the Philippines for six months, then the total amount you will need to save is 108,000 Pesos. However, if this financial target is too high, you may wish first to build a 3-month emergency fund, which would be 54,000 Pesos.
Essentially the easiest way to calculate your emergency fund in the Philippines is to find your monthly expenses and times this by 6. But as we have discovered below, there may be times when you wish to increase or decrease this amount.
2. How Much Emergency Fund Should I Have In The Philippines
As mentioned above, most financial gurus recommend the average person to have an emergency fund of at least six months. Even though this is often well-recommended advice, it is not the easiest task and can easily become a financial challenge. So the question is, do you need to save an emergency fund as high as this?
When looking at how much emergency funds should I have in the Philippines, it is often best to look at your earnings and financial incomings (not only your expenses). For example, if you are earning well from several different sources and have a low cost of living, you may not need a large emergency fund compared to the average person.
A good friend is an investor who has several investments, including cryptocurrency, stock market investments, real estate, and being a silent partner to many different businesses. He has a basic emergency fund of 50,000 Pesos because his cost of living is low, and he has a diverse portfolio. Therefore due to his financial positioning, he can take more risks than the average person.
Nevertheless, anything could happen to his streams of income. But as he has several forms of income that are continuously building additional wealth on the side, it is unlikely that he will need to dip into an emergency fund even if there was a real emergency.
Emergencies do happen in the most unexpected times. When looking at how much emergency funds should I have in the Philippines, I would often recommend the average person having a minimum of three months, but this may be slightly higher or lower depending on your circumstances, and this is why we always recommend speaking to an independent financial advisor.
3. How Much Is The Average Emergency Savings Of A Filipino
Unfortunately, there is very limited data regarding the average emergency fund. From speaking to readers, some have an emergency fund of several thousand. In contrast, others do not have an emergency fund.
Data from Statista suggests that 55% of members stated that they put more money into their emergency fund in the third quarter compared to the second quarter of last year. At the same time, others used the money to pay off their debts or save for retirement.
The Philippine statistic authorities released their findings back in 2015, which stated that the average expenses for a Filipino family were 215,000 pesos. However, the average family earnings for the year was 267,000 pesos, which resulted in an average family savings of 52,000 pesos.
Based on other data and findings, it can be assumed that the average Filipino saves on average 10,000 – 20,000 Pesos a year. But naturally, events such as the pandemic, economic changes, and individual factors can all impact how much the average emergency fund is for Filipinos.
4. Is An Emergency Fund Necessary Philippines
Emergency funds are designed for protection. Building an emergency fund is not a financial strategy used to gain financial independence or double your money. Instead, it is a tool used to offer protection during uncertain times.
An emergency fund may not be 100% necessary, depending on an individual’s financial status. For example, if you live at home with your parents and your family can easily support you, building an emergency fund may not be on your to-do list. Nevertheless, as emergencies and changes are around the corner, building an independent emergency fund may still be a good idea.
Financial stress and money worries in the Philippines are real situations brought on by not having a financial safety net. Therefore, if you are in a period where you see positive financial gains, it may be an excellent idea to start building your emergency fund in the Philippines.
An emergency fund is not 100% essential; however, it is often recommended for several reasons. If you are wondering how to calculate your emergency fund in the Philippines and find this challenging, it is often a good idea to focus on a smaller goal that is more achievable.
5. Where To Put Emergency Fund Philippines
So when looking at how to build an emergency fund in the Philippines, you may have several questions, and one of the most common questions is where to put your emergency fund once it has been built? Luckily there are several options available to savers.
Low Risks: The most suitable place where to put your emergency fund in the Philippines is in a low-risk account. Commonly in the Philippines, this is in a savings account. The disadvantage of placing your emergency fund in a low-risk account is that interest will be low; however, earning interest is not the main priority for most savers.
Medium Risks: One option also available is medium risks, such as investing in blue-chip stocks or medium risk mutual funds. This does have financial risks. Most financial experts do not recommend this option if you do not have other sources of income (or other emergency funds). However, this may be more suitable if you have several emergency funds or are financially independent.
High Risks: High-risk investments are a bad place to put your emergency funds in the Philippines. Most of the time, funds are needed in an emergency. In this scenario, investors cannot wait until the market has bounced back, and this is why high-risk investments are often not recommended for an emergency fund.
The best place to put your emergency fund in the Philippines is in a low-risk investment such as a savings account. Financially independent individuals with disposable income could invest in medium-risk investments such as blue-chip stocks or mutual funds. However, high-risk investments should be avoided when looking at where to put your emergency fund in the Philippines.
6. Best Bank For Emergency Fund Philippines
Now we have discovered the best place to hold your emergency fund is in the bank, but what is the best bank in the Philippines to hold your emergency fund? Luckily, we recently explored this question when we looked into the best saving accounts in the Philippines, but we also embarked on additional research.
During our research on the best banks to place your emergency funds in the Philippines, we found that NG Bank & CIMB Bank both offer the highest interest rate for savings accounts in the Philippines (2.6%). Furthermore, both banks have minimal requirements making it easier to withdraw your emergency fund if an emergency happens.
There are several mainstream banks and rural banks in the Philippines which the majority offer some form of savings account. If you find your bank offers a lower interest rate, such as 2%, staying with your bank may be a better option. This may offer the convenience factor, which outweighs the 0.6% disadvantage.
7. Emergency Fund Vs Savings Philippines
One common question we often get asked is what is the difference between an emergency fund vs saving in the Philippines? Fundamentally, an emergency fund is a small pot made up of 3-6 months of salary used for financial emergencies. However, saving is a small part of finances used to save for a particular project, such as buying a new car or redesigning a house.
However, both processes are identical when looking at emergency funds vs saving in the Philippines. In other words; we need to ensure that we save a particular amount of money each week or each month and be able to put this aside. Both have targets, but withdrawing funds from an emergency fund in the Philippines often comes with more restrictions.
8. Emergency Fund Tips
Start Building Your Emergency Fund In Stages
One of the main reasons emergency funds can seem daunting is that saving six months of your living expenses in the Philippines is challenging. Therefore one of the best emergency fund tips living in the Philippines is to focus in stages. For example, it’s often recommended to focus on one month of living expenses, then 3 and then 6. if you wish to save more, you can even increase this to 12 months.
Turn Saving Into A Game
Saving is an essential skill for building wealth. Saving won’t necessarily increase your wealth, but it is a skill needed to turn your savings into a profitable investment or business. Therefore learning the skill of saving can be very practical in the short and long term. This is why the simple task of turning a habit into a game can be excellent for your emergency fund and future growth.
Invest Some Of Your Emergency Fund
When you build your emergency fund in the Philippines, speaking to an independent financial advisor is always important. But from experience, many often recommend investing some of the emergency fund in a low-risk investment so that you can earn interest for the time you are not using it. Some even invest in low-risk stocks in the Philippines as an alternative investment.
Seek Assistance And Support
As mentioned above, when calculating how much you will need for an emergency fund in the Philippines, you will often find that financial professionals recommend 3 to 6 months. These professionals have a wealth of knowledge. This is why when looking at how to compute an emergency fund in the Philippines; it’s often recommended to seek financial guidance.
Keep A List Of Your Expences
When you look into how much of an emergency fund should I have to live in the Philippines, you will find that knowing the ins and outs of your expenses is key. Therefore one of the best emergency fund tips I would give for beginners is to write down a list of your expenses. This also includes any future payments or an increase of payments that is likely to happen down the line.
Pay In Advance If Possible
After recording your expenses, you may find that some expenses can be paid in advance to save more. These additional savings can be placed in your emergency fund. Therefore if you can pay for expenses in advance, you may find it much easier to build your emergency fund in the Philippines.
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