How to Build an Emergency Fund in the Philippines

I could vividly remember the day my husband broke the news that his paycheck would be put to a halt due to the nation’s extensive lockdown. I couldn’t wrap around my head the idea of being stuck at home all day for months, let alone not having income to cover our daily expenses.

What were we to do? Could we survive this covid19-chaos? I felt like we were in a sink-or-swim position. After thinking clearly, I managed to muster a positive response to him.

“Babe, now’s the time to use our emergency fund.”

And that, my friends, is just a simple proof of how crucial it is to start building your emergency fund. That is, so you wouldn’t be at the mercy of any crises.

1. What is an Emergency Fund?

An Emergency Fund – or “rainy day fund” or whatever you’d like to call it – is an amount of money which you can easily withdraw in case of, well, an emergency.

Here’s my official definition of what emergencies are:

  • critical illness, accidents, death, and job loss
  • circumstances which can cause you or someone close to you to lose their income

An emergency fund is not to be used to buy a new car. It’s not to be used for a vacation to Europe.

It’s not to be used to redecorate your living room. It’s for use only in case of an emergency: a tree falls on your house, your son breaks his leg, you lose your job, etc.

But what about all the stuff in between? What if your laptop dies? Isn’t that an emergency? Or should you just go to the computer shop nearby? What if you need new tires for your bike? What if you have an unexpected dental bill?

Ultimately, I think it is up to you to decide for yourself what your emergency fund can be used for and what it can’t. But once you make that decision, please stick to it.

2. How much do you need to save when you build an Emergency Fund?

Ideally, this accounts for 6 months of your expenditures (not income). But of course, why limit yourself when you can add more? Some people I know have gone the extra mile in putting up with one year’s worth of their expenses.

3. Why do you need to build an Emergency Fund?

  • To prevent you from further having debts. Well, if you didn’t have an emergency fund, you’d probably:
    • Stop repaying debt the moment there is an emergency
    • Use your credit card to fund that emergency (which means getting yourself into another debt)
    • The worst, do both of the above where you end up digging a bigger hole for yourself
  • To give you that much-needed peace of mind. You’d probably agree that anxiously waiting for your paycheck every month just to cover your needs is not a pleasant feeling.

Imagine, what if your employer encounters some problems and your salary comes in late? Having an emergency fund helps in a big way.

4. So, how do you start building an Emergency Fund?

a. Find a budget that works for you and put up a “savings system”

As stated in the book “The Richest Man in Babylon”, you should Pay yourself first. And part of prioritizing yourself includes setting aside a portion of your income for your emergency fund. There are methods such as the 50-30-20 rule, cash envelope system, and so much more. If you’re confused as to what budgeting method would work for you, below this post that might help you:

b. Keep your emergency fund in a separate account from your regular savings account.

I highly recommend this account does not have an ATM card. Or even if it does come with one, keep that piece of plastic at home. This way, you reduce the risk of using the fund impulsively.

c. Automatically deduct

Enroll in your bank’s automatic transfer. For example, you can set the bank to automatically deduct P3,000 every 15th and 30th of the month from your payroll account. This will be credited to a separate savings account labeled as your emergency fund.

This is a particularly effective technique because it means you don’t have to think about saving. Every payday, arrange for an amount to be routinely transferred from your paycheck/income to a separate account.

d. Cut down on expenses and live below your means

Maybe you can cancel some subscriptions you haven’t been using for a while.

Maybe you can downgrade your internet plan to a cheaper one but with the same efficiency.

Maybe you can limit your dine-outs and opt to meal plan and cook at home instead.

Oh, and I do not condone depriving one’s self. Like I always say, thriftiness is finding the right balance between spending on your needs and wants without affecting your financial goals. If you want to know more about this, here are our 5 effective ways on how to live below your means without feeling deprived.

e. Increase your earning potential

Remember this: You LEARN before you EARN. With a lot of free resources online, learning a specific job/side hustle is just right at your fingertips. Make yourself marketable by learning a new skill or putting up your small business. If you’re looking for a side hustle while keeping your full-time job, here’s our list of the 30 Best Side Hustles in the Philippines that can potentially help jolt up your income and net worth.

How to Build an Emergency Fund in the Philippines

5. Which is better for an Emergency Fund: Digital banks or Traditional Banks?

I recommend using both: Digital, for convenience and higher interest rates. Traditional, for the customer-centric services – that is, for more safe and trustworthy transactions.

I separated my Emergency Fund allocation into two savings accounts – one with a digital bank and one with a traditional brick-and-mortar bank. Nonetheless, having two EF savings can give you that much-needed peace of mind. In case the digital bank is under maintenance, you at least have a back-up fund readily available in a traditional bank.

How did I banish my fear of using digital banks?

First, I divided my Emergency Fund and put a small portion/percentage in my digital bank account and the larger portion intact in a traditional bank account. As I gained confidence while learning the ins and outs of navigating digital banks, I gradually increased the allocation in my digital bank account.

If you feel apprehensive and would want to test the waters first, you can start with 80:20 then 50:50. Then once you get your feet wet and are comfortable, you can shift to 20:80, and so on.

With this approach, you can take opportunity of the higher interest yield in digital banks, while still maintaining a decent amount of your EF in a physical bank. You can learn more about the two in this post: Digital Banks VS Traditional Banks Philippines. Which is better?

6. Get a Copy of the Thrifty Pinay Book:

When securing your family’s financial stability during a crisis (such as the pandemic), there’s so much more you need to do and prepare than just building an emergency fund. That’s why I’ve come up with my self-published book entitled, “How to Build a Strong Financial Foundation that can Withstand a Crisis.”

From my experience, I know that you sometimes might feel regretful (panghihinayang) to see a big chunk of money sitting idly for months (or even years). But I also know that when another pandemic, lockdown, or natural disaster strikes, having an emergency fund as a back-up can tremendously help you.

Your emergency fund acts as your self-insurance, cushioning you from small disasters. If you have a cash cushion, you have that peace of mind knowing that your financial plans can’t be derailed by a tiny unexpected event.


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How to Build an Emergency Fund in the Philippines

By Ameena Rey-Franc

Recognized as one of the Top Finance Blogs in the PH. Ameena Rey-Franc (founder of TTP) is a former Banker and BS Accountancy graduate turned Blogger, Keynote Speaker, and entrepreneur. Currently an RFP delegate, she is also the Author of a book about Financial Resilience and has held seminars for reputable companies like GrabFoodPH, Pru Life UK, VISA, JPMorgan Chase& Co., Paypal, Fundline, Moneymax, and many more. The Thrifty Pinay's mission is to empower women to LEARN, EARN, and be FINANCIALLY-INDEPENDENT no matter what life stage they are in.