th images menu user export search eye clock list list2 arrow-left untitled twitter facebook googleplus instagram cross photos entrep-logo-svg

Financial Adviser: 5 Ways to Build Up Your Savings for an Emergency Fund

Having an emergency fund is having peace of mind
By Henry Ong |



Q: I have been working in the corporate world for some time now but I don’t seem to have enough savings in my bank account. I am afraid that I may not have the cash to pay for unexpected events when I need it. What should I do?Buena, by email



Building an emergency fund is an essential step in personal financial planning. This is the fund that you set aside from your savings to cover any unexpected financial dilemma resulting from personal crisis.


Crisis can happen to anyone. You may suddenly lose your job, or face an unexpected illness or accident, which may require you to shell out major cash outlays to sustain your expenses for the next few months. When this happens, the last thing you need is additional stress to look for someone to lend you money.


Having an emergency fund is having peace of mind. The purpose of building a fund is to improve your financial security. You may not have enough savings in your fund to handle all financial shortfalls, but at least having the discipline to save and build a fund can give you a sense of security and help you lower the amount of emergency money in case you need it.


How do you get started in building your emergency fund? Here are the five tips everyone should learn when saving money for emergency use:



1. Decide how much you need

The standard recommendation by financial planners is to have an emergency fund that can cover at least three months of living expenses. For example, if your monthly expenses amount to Php50,000, you need to build up your savings up to Php150,000 as your standby fund.


However, given the uncertainty of emergency needs and rising costs of services, three months may not be enough to sustain your financial shortfalls. You may need to increase it to at least six months’ worth of living expenses to have a comfortable buffer fund.



2. Decide how to allocate savings

Most people will spend first the moment they receive their paycheck and save later. Very often, there is almost nothing left to save by the time the month has ended.


When you decide to save, make the commitment to pay yourself first. Set aside a portion of your monthly income; let’s say 10 percent, before you spend the balance for your personal expenses. You can open a bank account just for this purpose and start saving automatically.




3. Decide how to invest the fund

Once you have enough savings in your bank account, you need to invest it in order to grow. Keeping all your money in the bank will not do you any good because the returns are negligible. You need to make your money work for you at the best returns possible. 


Because this is an emergency fund, you can’t ask for so much also. Normally, higher yield investment requires long-term commitment. For example, investing in a seven-year bond that pays seven percent interest may not be ideal for financial buffer because terminating it prior to its due date for emergency purposes may result to capital losses.


You can invest a bulk of your savings in money market funds that earn higher than a regular savings account. Diversify the other portion of your savings into preferred shares that pay relatively high dividends and maybe some blue chip stocks.



4. Decide where to keep the fund

In principle, when you build your savings for your emergency fund, you must keep it in any investment vehicle that is low risk. You cannot afford to invest your emergency fund in a high-risk, high-return investment because you don’t want to incur losses in the event that you badly need it.


You must also make sure that you keep your funds in liquid investments. You must be able to easily access it and liquidate immediately in case of emergency.


For example, choose money market funds that will allow you to discharge the next day without termination costs. Keeping some of your savings in preferred shares will also allow you to liquidate easily by selling your shares in the stock exchange anytime.



5. Decide how the fund will be used

If you have a sizable emergency fund, you can divide it according to short-term and long-term purposes. You can allocate a portion of the fund to take care of your small financial emergencies. In this case, you can keep the funds in low-risk, low-return and easy-to-liquidate investments.


You can make up the low-returns by investing a portion of your emergency fund for larger financial needs. While accessibility is still important, this one may take few more days to liquidate because of commitments with the bank. This type of investment earns relatively higher returns than the short-term funds.





Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice or follow him on Twitter @henryong888 


Latest Articles

The Surprising Second Act for One of YouTube's Biggest Stars

Connor Franta has begun planning for a life after YouTube -- building a business that, one day, he...

byLaurie Sandell | September 21, 2017 09:00:00

The 4 Skills Needed to Make a Great Impression

Check out the research behind the first few seconds of meeting someone and how to make a great and...

byVanessa Van Edwards | September 21, 2017 07:00:00

The iPhone of Drones Is Being Built by This Teenager

With the millions he's raised, his flagship product might become one of the most game-changing...

byJesse Hyde | September 21, 2017 06:00:00

Pinoy Kids Need Not Worry: It's Business as Usual for Toys "R" Us

Local franchise holder assures all 34 standalone branches and 44 toy box outlets are open ahead of...

byElyssa Christine Lopez | September 20, 2017 18:00:00

How Much is the Typical Filipino’s Budget for Buying a House?

Real estate portal Property24 profiles the typical Filipino property buyer

byLorenzo Kyle Subido | September 20, 2017 10:00:00

(Video) Meet the Business Owner Who Caused a Z Movie-Like Stampede for the Php8 Zark’s Burgers

Why thousands of customers risked hurting themselves for a burger sandwich

byEntrepreneur Staff | September 20, 2017 10:00:00

What Has JAZA Got To Do With the UN’s Sustainable Development Goals?

Ayala Corp. chairman recognized as pioneer in crafting business strategy and operations around 17...

byElyssa Christine Lopez | September 20, 2017 09:00:00

The Luxuries People Can't Live Without (Infographic)

A recent study found that more people would give up Spotify for Netflix.

byRose Leadem | September 20, 2017 08:00:00

The 3-Step Approach for Testing Out Your Business Idea

Here's how to learn the most from your potential customers and get honest feedback

byVanessa Van Edwards | September 20, 2017 04:00:00

How 6 Business Titans Created a Thriving Team

As the host of podcast Masters of Scale, Reid Hoffman asks everyone from Mark Zuckerberg to Sara...

byEntrepreneur US Staff | September 20, 2017 02:00:00

Financial Adviser: 5 Ways to Make Money from Freelance Consulting Without Losing Your Day Job

Long experience and deep knowledge in a field are key ingredients of a consulting career

byHenry Ong | September 19, 2017 12:00:00

Ex-BlackBerry PH Manager Raises Php32-M for Online Store Selling Electronic Gadgets

Poundit wants to be the top-of-mind for consumer tech products in the country

byLorenzo Kyle Subido | September 19, 2017 11:00:00