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At the start of the year, it’s easy to come up with several financial goals. But it’s also easy to end the year without fulfilling any of these especially when we get overcome by various family expenses along the way. So, this year, let’s work to achieve just one specific goal by December 31, 2019: to build your family’s emergency fund (e-fund).
How important is an e-fund?
An e-fund is cash savings which the family would use ONLY when confronted with an emergency situation – such as a time when the breadwinner could not work due to sudden illness, an accident, or loss of a job. An e-fund helps sustain the family’s normal expenditures as they go through the emergency until the breadwinner recovers and is able to resume work. All families should be ready for such a situation.
How much money should be contained in an e-fund? Every family should have at least three to six months’ worth of their regular monthly expenses.
Some families with credit cards use these for emergencies. The beauty of an e-fund, however, is that this will not incur additional debt upon the family, and it can be used for transactions where cold cash – not credit – is needed.
To help us along the way, I designed a list of key phrases and practical tips which you can use for the next 12 months:
January: BE INTENTIONAL. Identify how much you should save. If your family’s regular monthly expenses is Php 20,000, and you decide to build an e-fund for three months (i.e. Php 60,000 worth of e-fund), your goal is to save a minimum of Php 5,000 for the next 12 months. If you’re an employee, that’s Php 2,500 every payday. Designate a savings account to hold this money and make a commitment between you and your spouse not to touch this money unless it is an emergency. Cut down on unnecessary expenses to free up money for savings.
February: DO IT AGAIN. Habits cannot be formed in an instant but through continuous repetition. So, even if it’s challenging to cut down on some or many expenses, just keep on with the goal. Set aside the amount you’ve decided to save for the e-fund. And since February is a Love Month, remind yourself and your spouse that this goal you’re pursuing is one way to show each other love.
March: MOVE UP. If you have school-age kids, this month will be the time for them to move up to the next level of their studies. Make it a motivation to move up as well in your savings. Set aside money for your e-fund, then plan and budget for your family’s upcoming summer vacation. Summer is usually the second most expensive period of the year, especially when there’s no budget set aside to regulate activities.
April: BE FAITHFUL. Stick to the budget. Without being careful, you might be duped into spending too much on summer events and products. Be faithful to your e-fund goal.
May: DON’T GIVE IN. Don’t be tempted to forgo saving money to extend summer fun and excitement. Set aside your committed amount for your e-fund. Remember that you also need to create your budget for the upcoming school year.
June: TEACH BY EXAMPLE. Most of what your children will learn in life comes from what they observe at home – not just from school. Teach your child to be thrifty at school; challenge them to have their own saving goals. To make your lesson concrete, show them your commitment to build your e-fund. By setting aside your monthly committed amount, the good news is you’re halfway to your goal.
July: POWER UP. The rainy month can make it tempting to be lax and lazy, but don’t give in. Empower your mind by reading books or articles about proper money management. Revisit your progress for the past six months together with your spouse. See how you overcame challenges and identify areas for improvement. This will motivate you to continue setting aside your monthly e-fund amount.
August: PRESS ON. This stormy month is a good reminder that what you’re doing is very important. Households can end up deep in debt when they have nothing set aside when emergencies happen. So, keep up with your goal.
September: AVOID DISTRACTIONS. Christmas season is approaching. Music in the mall and the radio and advertisements on TV and on the internet are now prepping consumers for Christmas. This can be a distraction. Remember: You’re just three months away from fulfilling your goal! So, set aside your e-fund amount! In addition, start planning your family’s Christmas expenditures to give you a heads up of how you should spend for activities and purchases this holiday season. Don’t get derailed.
October: GET AHEAD. As the Christmas season nears, the surge on consumer demand and the artificial shortage of commodities created by marketers to increase the urgency to buy will raise the prices of goods. Start buying dry goods while prices are relatively lower and malls are not yet overcrowded. This way, you will be able to set aside the amount you’ve decided to save this month for your e-fund.
November: YOU’RE ALMOST THERE. During this time, you can have a surplus of income due to yearend bonuses or remittances from abroad. But despite the lure to spend it this Christmas, this is not the time to derail from your goal. Stick to the budget you made earlier. Set aside your e-fund amount, or use your surplus to save in advance so that you’re done with your goal. Remember: You’re just a few days more to your end goal.
December: YOU DID IT. Congratulations! By this time, you should have completed your desired e-fund. If you did, it’s time to celebrate. Otherwise, this is a good time to reflect on what went wrong along the way and how it can be addressed in the future.
I hope this simple guide helps you build your desired e-fund by December 2019. It will not be easy especially if it’s your first time to deliberately push for a specific financial goal. And just in case you get derailed from your plan in the coming months, review this article, regain your focus, and commit to get back on track.
Dennis A. Dawal is a Registered Financial Planner. He is a speaker, lecturer, and writer on personal finance and retirement planning.