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How Much Should I Put Into My Emergency Fund?

Posted by mycentsofwealth

An emergency fund is money set aside for unforeseeable events like when you or a family member gets hospitalized, immediate house repairs, or unexpected burial costs when a family member dies. It will provide you a safety net for these events that you have not really prepared for. In August 2018, I had an accident and had to stay a week at the hospital for further observation. Luckily, I had health insurance at work that covered all of my hospital bills. However, we had small unexpected expenses. We couldn’t cook at home and always ordered take out so our food expenses at that time went way high. My time off work also cost me a lot because I didn’t have enough leave credits at that time. I didn’t get paid for that week where I was in the hospital. I used my small savings to cover all of these and I had to delay the plans that I was saving up for. 

I only had one savings account at that time with no particular end goal in mind. I thought that as long as I had money saved, I was good. I eventually converted this to an emergency fund with the goal of having three months’ worth of expenses there. I’ve had small emergencies ever since and I’m glad that I have that fund because it has helped me a lot without sacrificing my daily living expenses and wants. 

How much should you save on your emergency fund?

The rule of thumb is 3 to 6 months’ worth of expenses. However, building your emergency fund depends on a lot of factors. Here are some questions to ask yourself when deciding how much to put into your Emergency Fund. 

  1. How much is your monthly spending? If you don’t know this yet, list all of your fixed expenses, put a reasonable amount on your variable expenses, and add everything up. Mine is 25k pesos per month.
  2. How many persons are there in your household? Do you just spend for yourself or do you have family members that you take care of? Add in their expenses as well. I am single and have no kids but I do send money at home which is already part of the 25k.
  3. How stable is your source of income? If you’re a freelancer or a business owner, that means you don’t have a regular amount of income like employees. However, employees don’t always have the assurance they can keep their job forever. How long do you think you can find another job in case you lose this one? If you can find another job in a month, then 3 months’ worth of Emergency Fund should be okay. Do you have another source of income that can cover your expenses in case you lose your job? Keep these factors in mind.
  4. Do you or your family members have health insurance? If not, you might want to bump things up in case of hospitalization. My job covers mine and my mom’s health insurance so I am covered on that part.
  5. Do you have a car and own your home? Cars and houses have unexpected and hidden expenses like repairs so factor that into your EF. If you are just renting then check with your landlord if they cover repairs. Some just create a sinking fund for repairs but that’s up to you.
  6. Do you have debts? Your debts will not stop in case you have an emergency. Add an extra amount there to cover this in case your source of income stops.

How much is mine?

Mine is 75,000 which is three months’ worth of expenses. My average expense is 25,000 per month. I rent and do not pay any mortgages. I only support myself but I have financial obligations at home that are already included in the 25,000/month expenses. I work for a private company and honestly, for me, there is a small chance that I will get fired. I have been working for the company so long that I am sure that my knowledge and expertise is valuable for them. If ever I do get fired, I am confident that I can look for a new job in two months’ time even in this economy. I also do not have any debts. I keep my Emergency Fund in a low maintenance BPI savings account. You can open one here.

It took me two years to fully fund my emergency fund because of other expenses. Even though it was not fully funded at the time yet, it already gave me the assurance that I have something to fall back into in case something happens.

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