(Cool piggy bank. File photo from Agence France-Presse)

9 weeks: the average Filipino’s rainy-day fund

Saving money, Financial Planning

I have a friend who loves rainy days. She loves the sound of raindrops on her car, her windowpanes, the street – just about everything! I too find the rain very “senti”, uber-relaxing and it puts me in “emote mode” hehe. Helps me to put words on paper too.

But rainy days of the financial kind, that’s another thing. I can’t imagine anyone liking them. They strike suddenly and ruthlessly – and you don’t know long they will last.

Remember the recent study by Citibank that revealed Filipinos have low financial IQ? There’s another revelation in that survey that says average middle-class Filipinos have on the average nine weeks’ worthy of rainy-day funds.

On the one hand, I found it quite comforting that average, middle class Filipinos have a rainy-day fund at all! On the other hand, that fund won’t see us through those dark and depressing days.

As you all know, the prescribed amount is three to six months worth of living expenses. The baseline is not your salary or earnings from business, but living expenses. Here’s a thought: do you know how much you spend monthly? If all you have is a vague figure, get your pen and start jotting down monthly expenses.

I have previously written that putting your money in mutual funds, bonds or equities is foolish if you don’t have an emergency fund first. You don’t want to be caught needing cash when the market’s down!

Our personal finance feature for today from Citibank says:

Nine weeks. That may not be enough to get back on one’s feet. Thus, there is a need for an emergency fund that should cover anywhere from three months’ to six months’ worth of expenses. This will help you tide over the tough times until you get back on track. Besides, borrowing money to cover emergencies will cost you more.

Should you save for three months’ or six months’ worth of expenses? Some financial experts advise only three months’ worth of expenses in the emergency fund if you are employed. If you are self-employed, they say you’ll need six months’ worth of expenses.

But of course, the more you save, the better. You do not know when bad things may happen and for how long they will last. Save at least six months’ worth of your expenses — living expenses, bills, saving for a child’s education, and the like.

As to your big challenge: How to save for an emergency fund when there doesn’t seem to be enough funds in the first place.

Here are some tips:

1. Stick to your goal. If you say to yourself that you will start an emergency fund, be committed to do all it takes to fulfill that goal.
2. Review your obligations. You mentioned that you have “so many other obligations.” Study your list and find an expense you can cut down. For example, if you haven’t been going to the gym at least three times a week, then you may be better off canceling your gym membership. The savings you will get from canceling the monthly dues can be channeled to your emergency fund. You can find another exercise alternative that won’t cost you money, such as walking in the park.
3. Before spending anything for the month, save first. Once you get your paycheck, set aside some money for your emergency fund. Start with at least 10 percent, and increase it as you free up more obligations. Making saving a priority will be beneficial for your financial future.
4. Open a separate account for your emergency fund. This will help you to avoid dipping into your emergency fund for living expenses.
5. If you have a sideline income or receive a windfall (example: bonus or prize money from a contest), use this to pay off your debts, then put the rest in your emergency fund.
6. Cut down on expenses that you can do without. These may include weekly trips to an expensive coffee shop, or going for designer clothes. Just think: if your family is in need or has an emergency, you wouldn’t even think of these things. But you will rack your brains thinking of how to meet the family emergency with your meager funds. Thus, prioritize the emergency fund.

If you or anyone you know is struggling to set up an emergency fund, how’s this for motivation. Forget the three to six months rule of thumb for the moment. Just start saving any amount upwards of P1,000 this payday and move on from there. Start with small steps and give yourself a pat in the back afterwards. Consistency is what matters most. You’ll find it easier as you go along.

Good luck!

I only have admiration for people who try to educate themselves on financial planning or how to manage their money. When I wrote about Mariannet early this week, I was amazed at those who responded – many of you have come from similar (or even worse) but have managed to lift yourselves by your bootstraps and are, in fact, doing well!

One of you who commented on that post was right: you are a testament that poverty does not have to be a widespread problem. The answer lies within each of us.

In fact, Dr. Noet Ravalo’s column yesterday talked of real-life stories of two drivers who were from the similar backgrounds, but have very different strategies on saving money.

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I was exhausted, cranky, in need of a long, warm bath and some chocolate bars to perk up my mood. Worrying about someone in the family who is sick, especially if that person is a baby, does that to you.

But the voice of the man near the admission counter of the hospital where my son was admitted pierced the cloud of selfishness around me. He was obviously in pain. And he could not get a room at the hospital.

“I’m sorry, sir. We don’t have a room for you. You can wait in the ER until we have a room that fits your card,” the clerk said.

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