Unlike a savings account that’s set up with a purpose (e.g. Eurotrip, paying off mortgage, or business capital), a trusty emergency fund keeps you afloat from unexpected financial drawbacks. In the event of job loss, sickness, or calamity, this is where you’ll be getting your funds. It can also double as a savings fund, granted that you won’t have to use much of it in the years ahead. You can easily get a portion from the emergency fund and put it in investments that would yield more interest.
No matter your age, it is never too late to start saving. This timeline will help set your course towards building a contingency fund.
In your 20s: Start small
Start early. Slow but steady. This is the best time to build the foundation of good money habits and savings.
You might think it’s hard to save money now because of your entry-level salary and overwhelming monthly bills. But the truth is, it’s going to be much harder to save when you’re older, married, and with kids to take care of. If anything, your twenties will be challenging career-wise, and you’ll be more adept in facing them if you have a contingency fund to back you up.
Get rid of excuses and start small. Set up a bank account and deposit at least P500 every payday and gradually increase your savings. BPI Direct Save-Up lets you automate your savings, which will come from your main BPI savings account. You’ll only need to set the amount and frequency of funds transfer for a minimum of P1,000 per month. You can choose between a higher interest rate account, or the one with free accident and life insurance through BPI-Philam Life.
If you’re an OFW or Seafarer, you can save using BDO Kabayan Savings Account. This comes with an ATM debit card and passbook, where you can easily remit or credit your allotment.
An automated savings account helps you practice the “save first, spend later” habit. People tend to relax around this age but will end up being burdened by a tight budget in the long run. This is the best time to take advantage of your work experience and skills to earn more income.
In your 30s: Stretch your finances
You will have bigger priorities around this time, but your emergency fund should stay untouched. Save at least 15% of your income so you start saving for retirement as well. Find more ways to earn more money so it supports the bigger demands in your life. Get your debt under control, and allocate funds if you are planning to settle down or have a kid.
You can request a rate reduction for your credit cards, save money from your tax refunds, and set a timeline as to when you’ll be able to settle your debt. Freeing yourself from debt lets you stretch your income so you can focus on effectively managing your finances. Aim for at least six months’ worth of savings, so you can cover all your emergency needs.
It’s crucial that you be consistent with your savings. You can easily borrow money for your children’s education, but start late in building your back-up funds and you won’t have saved enough for retirement.
In your 40s: Retirement
If you were able to follow through your emergency savings early on, the focus of your emergency fund at this age should be about health and retirement. Sell unneeded assets so you can double the amount you save for emergency. Go over your investments for risks, and make sure you’re fully covered for medical and retirement expenses.
If you haven’t put some of your savings under your beneficiaries, now is the time do so. In the event of emergency, they will be able to access your funds and use it accordingly. This may also go to your children’s college funds.
Continue the habit that made you save bigger over time, and you will have your funds in check. Ideally, your emergency savings at this age should be equal to that of your current gross annual income.
If it was easy, everyone would be able to save enough money. But this habit is built from wanting to get ahead of your finances, being prepared, and avoiding debts and loans at all cost.