Thursday, September 18, 2008

On Emergency Fund (EF)

I have read a lot about emergency fund. This is the money that would be readily available for you in case you lose in a business, lose a job or in any other cases of emergency. It should be as liquid as possible. Some say that EF should be equal to 12months of your monthly expenses/necessities. Others say 6 to 8 months would be good enough. It all depends on the kind of business or job you have and your capacity to find another source of income in times of trouble. Hope some of the infos below would be helpful.

Other things to consider in computing for your EF
- hospitalization should be included which is approximately 100K-200K
- should add about 10% to cover for inflation or price increases
- food expense should be doubled since you'll be spending most of your time at home
- Other utility bills like electricity and water consumption might increase as well.
- insurance premiums and other pre-need plans should be included.

Where to Keep it
1.Bank/Passbook w/o ATM
PROS: Short term vehicle, Easy Access
CONS: Interest is small.

2.Time Deposit (Preferably 30D only)
PROS: Interest is higher than Regular Savings Account
CONS: With charge if you withdraw prior the maturity date.

3. Mutual Fund/UITF
PROS: Potential higher return.
CONS: Not as safe as deposit accounts because it depends on market status. Liquidity - withdrawal takes 3-5 working days.

In summary, according to Sherwin, the key words would be liquidity, accessibility and safety because the objective of this fund is not for growth, but for emergencies. HTH. You can also share some thoughts here.

1 comment:

Mrs. G said...

We also have an emergency fund. We haven't reached our target amount but we're getting there.

As to hospitalization expenses, I'm now shopping for a good health card. Any suggestions?