An Essential Guide To Building An Emergency Fund In The Philippines

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An emergency fund is a safety net to have in case anything goes wrong. It’s also the first step on the road to financial independence and freedom from debt.

This blog post will teach you how to build an emergency fund that can withstand any storm and be saved for and used when needed.

Having emergency savings can spare you a lot of headaches and stress when unforeseen happens. Here’s how you can build an emergency savings fund from scratch.

What is an emergency fund?

An emergency fund is a stash of money that helps cover the cost when something unexpected happens, like losing your job or needing medical care.

It’s always a good idea to have some cash set aside so you can take care of these costly events without depleting all your funds at once – this will leave more available for saving! In fact, that even some companies are helping their employees build one.

Savings vs. Emergency Fund

A savings account is something you use to save up for one specific goal, like buying that new car or taking your family on vacation.

Emergency funds are set aside specifically. If anything happens in life (car accident, illness, job loss), you have money available to help keep food on the table and shelter costs until things get better.

Having an emergency savings fund has benefits that go beyond the economic:

What are the benefits of building an emergency fund?

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Peace of mind

An emergency fund will give you peace of mind knowing that whatever comes along can be easily handled. Building this also gives your loved ones peace of mind too! If they know there’s cash available when times get tough, they’ll feel more at ease and less inclined to borrow money from you.


Job stability is never guaranteed. If your employer goes through a rough patch or the economy softens, it can be nerve-racking.  Having a stash of money to back you up can help you manage anxiety.

Avoid more debt

If you have an emergency fund, then your credit card and other debts are secured by something tangible just in case things go south.

Adopt a great habit

Building up your savings account helps develop healthy spending habits and create savings goals with less anxiety than relying solely on credit cards or loans from the bank.

How much should you save in your emergency fund?

No set figure will work for everyone, but a good rule of thumb suggests about three to six months’ worth.

Determine the amount by calculating how much it would cost to cover your bills and expenses if they weren’t paid. Add up all the monthly payments on your credit cards, loans, mortgage or rent (if applicable), car lease or loan (if applicable), utility bills (electricity/gas/cable TV), and other recurring monthly costs like groceries.

Distinguish between needs and wants

It’s crucial that when planning how much money should go into an emergency fund, one divides their expenses between necessities and desires.

This will help people determine what percentage of income can safely be put away in savings without neglecting other areas of financial responsibility.

How do you build an emergency fund?

It might not seem easy to save money when you’re already juggling multiple expenses. One way to ease into it is by using small, incremental steps. Set a doable goal at first that stretches you a little.

Set a goal

If saving 3 to 6 months of expenses seems difficult at first, start with a smaller goal. Try to save as much of your paycheck as possible, and put it all in an emergency fund savings account.

Once you have the funds saved for your first month’s expenses (or any other time period), start saving each week or every two weeks again until you reach your target.

Start today

The best time to start saving for your emergency fund is today.

You may not be able to put away a lot of money at first, but you must start saving as soon as possible. You can use your monthly paycheck stubs and track how much you are spending each month on necessities such as food, transportation, and entertainment.

You might also want to do the same for things like clothing or phone bills. Add up all these numbers to know what percentage of your income goes towards these expenses every month. Then take this number and divide it by twelve (12) to get an average monthly cost per item.

Cut Back your Expenses

If you’re currently living paycheck to paycheck, which is not a recommended strategy for building an emergency fund, start by cutting back on your discretionary expenses.

Cut out extraneous items such as coffees during the week or takeout meals that add up quickly. You should also cut back on any other type of spending where you are using credit cards so much to get points and rewards (or pay off debt). Instead, use cash! Track what kind of purchases you make with your debit card each month – coffee shops? Grocery stores? Restaurants? Online shopping sites like Amazon?

Then track how much money those types of transactions cost per month. Do this every quarter if necessary until it feels more manageable and you can start to see how much money you need.

Make recurring Deposits

The first step is to set up a direct deposit into your emergency fund from every paycheck so that the money will come out of each paycheck and go directly into an account designated for emergencies.

Setting this up as a scheduled transfer keeps you from thinking about what’s in your account or how much you can afford to save until after your next payday, which helps maintain good spending habits.

Once these transfers have been established with any new job, review them monthly or quarterly—when times are tight, reducing even one withdrawal could make all the difference down the line.

Doing the math can be pleasantly surprising. If you set aside ₱1000 every week, for example, you’ll get to ₱40,000 in 10 months.

Save excess cash

When you get a salary increase, a bonus, or an unexpected windfall, you might be tempted to spend more. If this happens to you, fight the urge to spend and immediately put the excess money in your savings account.

If you get a raise, increase the amount of your recurring transfer. By moving the cash, you’ll be less tempted to spend it, and you’ll be in a better position to reach your savings goal sooner.

Refuse to Give Up

To save money, you must be relentless. You’re going to have urges and temptations that will make it hard for you not to break your own rules.

However, if you never give up, the temptation won’t last long to become a habit.

If you can resist all of these things, then they’ll eventually go away as other needs arise in life. Keep reminding yourself what’s at stake by picturing how different your life would feel with $1000 instead of $0 saved towards an emergency fund.

Where should I invest my emergency fund Philippines?

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The money in your emergency fund needs to be kept in a safe account that’s easily accessible to you. When the need arises, you want your funds to be readily available at a moment’s notice. You can invest in UITFs or online banks.

Keep it safe

So you have an emergency fund but don’t know where to invest it? You might want to consider investing in a UITF.

This type of investment is good for long-term goals and low risk because the funds are invested without leverage. Two instruments can be used: the money market instrument (MMM) and the fixed income instrument (FII).

The MMI is liquid like any other bank deposit account, while FII gives higher returns than MMMs and professional management from your chosen financial institution. What’s more, these investments come with insurance under PDIC or protect up to PHP 500K per individual account holder if something happens to the said financial institution.

Important: You want to keep your funds in an account that is PDIC insured. The PDIC provides deposit insurance and is backed by the Philippine Government.

Your piggy bank is not the best place to keep your emergency fund. Higher investment returns are only available by taking on investment risk. And the risk is something you don’t want to mix with your emergency fund.

Use separate accounts

The first thing you should do is to open a separate account for your emergency funds. This way, the money will be set aside for an unexpected expense or lost income opportunity. You can use any savings account as long as it earns interest and has no withdrawal penalties (e.g., from the bank).

Earn a competitive return

Once that’s accomplished, add your savings from now on into a high-yield savings or investment account so they continue earning interest over time. And don’t forget about inflation – try to save responsibly to have sufficient savings today and tomorrow as well!

Having an emergency fund is a prudent idea. It’s even better if your money is earning higher competitive yields. You may struggle with the idea of keeping thousands of dollars sitting in a low-yielding savings account. But there are other alternatives.

Important: You can make your cash work harder with a PDIC insured, high yield savings account. These accounts earn you a higher annual percentage yield or APY than traditional savings accounts.

Online banks like ING and CIMB high yield savings accounts offer better rates than traditional banks since they don’t run the same overhead costs as regular banks. Also, you can make unlimited deposits and access your money with the same frequency as a typical savings account.

Bottom line

Many of us have heard the adage: “Don’t put off until tomorrow what you can do today.

But for some, this is easier said than done. Building an emergency fund is one way to get started on saving money and getting your finances in order. 

In fact, it’s one of the first steps to financial stability.

It doesn’t matter if you only make Php20,000 or Php200,000 per month – an emergency fund is something everyone should consider as you work through your own personal finances and build wealth over time.

I hope I’ve helped shed some light on how small changes today can bring big benefits down the road!


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