Be prepared for surprises, have an emergency fund
An emergency or contingency fund is money set aside for unforeseen needs.
I have a very good friend who approached me and asked what’s a good mutual fund for her. As a financial planner, I immediately asked what’s the investment for – is it for her retirement? For a future cash obligation? Perhaps an expensive vacation 10 years down the road?
She answered no. She just wants to invest and get a good return for her money.
I then asked if she already has an emergency fund in place. I got a blank reaction then in a split second, with her brows drawn together, she gave me a curious stare.
Life can catch us off guard. We can get sick and hospitalized. We can lose our jobs. If not us, our spouses or our loved ones. Unfortunate events such as these will add to our financial burden.
Is it possible to be prepared for these surprises? Is it possible to be secure knowing that whatever life throws at us, we and our families are assured that expenses will be met for the coming weeks and even months?
I am not talking here about insurance in the event of death or even disability. I am talking about having the cash ready at hand to fund these contingent needs.
Again, is this possible? The answer is yes.
One of the most often overlooked aspects of personal finance is having an emergency fund. Some call it contingency fund. Whatever term is used, a lot of people don’t recognize the need for this and, even if they do, they don’t know how to go about it. My good friend is among these people.
An emergency or contingency fund is money set aside for unforeseen needs. It is money that can cover 3 to 6 months’ worth of expenses, as typically recommended.
It should be easily accessible, withdrawn at any time, and the amount protected and guaranteed. It should primarily be in an ATM account. But if the size of the fund is significant, putting some of it in low interest-bearing instruments, time deposits, passbook accounts, or even money-market funds can be considered as well.
I must stress that having it ready and available is very important. The trick is tiering it among these instruments, allocating it in such a way that surprise expenses can be met with the greatest ease and convenience. – Rappler.com
Rienzie Biolena is a Registered Financial Planner of RFP Philippines. He is a Senior Financial Advisor at asset management company, and Columnist of Business Mirror and Rappler.
Source: http://www.rappler.com/business/personal-finance/52626-be-prepared-have-an-emergency-fund
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