How to Build an Emergency Fund for Your New House
What are the ways to build an emergency fund?
- Set a Monthly Savings Goal
- Breakdown Potential Savings
- Look for Money Leaks in the Budget
- Collect Spare Change
- Use Automatic System Transfer
Have you decided on which location to live in? Whether you are going to Metro Manila or Nueva Ecija, Pagibig’s housing loan will support you in building an emergency fund for your home. While putting your emergency fund in a high-yield savings account where you can easily withdraw and transfer funds, PagIbig’s multi-purpose house loan remains the most preferred option.
Emergency funds will prepare you for any unexpected setbacks in the future. It could also reduce your dependence on borrowing immediate cash that is most likely offered at higher interest rates. In saving for an emergency fund, you do not have to pour your money all at once. Your best approach in saving for an emergency fund is to increase it slowly but steadily.
Set a Monthly Savings Goal
When saving for rainy day funds, set a low target that can be reached in a short amount of time. With this, you will be able to stick by the goal and avoid starving yourself financially. In time, you will learn how to save more than what you have set.
The money you can try to initially save can be equivalent to two or three months of expenses. It is deemed the minimum of an emergency fund. Why such an amount? The logic behind this is that major house repairs may need cash backup until income stabilizes. Emergency funds should be able to cover most of that.
At the end of the day, it is always better to thrive for a higher amount for your emergency fund. Again, do this gradually by deducting amounts from your monthly salary for the fund. You can aim for over nine months, so you will definitely have a better sleep at night knowing you have a significant amount kept away.
Breakdown Potential Savings
Your potential savings will come from a portion of your monthly expenses. Cutting down monthly expenses is arguably the biggest challenge for personal financing. Particularly, figuring out ways to spend less money will sometimes force you to choose between two necessities. Before you start convincing yourself that you need something, think about the cumulative effect of saving the seemingly small and insignificant coins. This is when you realize that spending the little bills becomes a huge drain on your resources.
Turn some of your monthly expenses to potential savings by reassessing the necessities in your life. You can start by cutting down some of your luxuries in life. Definitely, transportation and food should not be something that you must starve yourself with. They are basic living necessities. Which is why it is more ideal to reduce your vanity or luxury expenses.
Look for Money Leaks in the Budget
As the saying goes, “every penny counts.” Do you order plenty of food in the restaurant yet end up being unable to consume everything? You might not feel it, but those are leaks in the budget. Do you leave lights on even though nobody is using it? This is another leak that you never notice because it is not second nature to you checking the breakdown of the electricity bill.
Anything that you bite more than you can chew is money leaked into your budget. To save up for an emergency fund, you must have self-regulation. Be aware of the things that you spend your money on to make sure they have a purpose and that they have value for your hard-earned money.
Collect Spare Change
The idea might be a cliché or perhaps something that may have done before but did not work, but collecting spare change can accumulate huge amounts of cash in time. Have your entire family empty their pockets and wallets for change at the end of the day. You can save it traditionally by putting it in a jar or a junior savings account that does not require any maintaining balance. This technique of saving up money is just a supplementary effort. Avoid depending or expecting too much from it.
Use Automatic System Transfer
Aside from putting your fund in an accessible place, try setting up an automatic transfer from your regular checking or savings account that transfers certain amounts to your emergency fund. With this, you will not have to do the task manually. More importantly, make sure your accounts are labeled properly to avoid confusion.
According to general knowledge, emergencies and savings funds are all the same. They are both used for health, financial and property safety. The key difference between the two funds is that emergency money can be maintained for security purposes while savings are to obtain financial freedom.
After carefully examining your expenses and potential savings, and the location for its safe-keep, choose to build an emergency fund where it can be easily accessed and at the same time allowing it to yield higher returns must be your priority. Opting to seek assistance from Pagibig housing loans at Nueva Ecija and similar loaning companies remains your best solution.