Emergency Fund

No one wants a bad day.  But, things can get worse if we are not prepared for it.  Hence, there must be enough reserves during rainy days.

How large one’s reservoir should be?   Majority of the financial experts opine that it should be about three to six times (3x-6x) of an individual’s or a household’s monthly expenses.  

Hence, an emergency fund depends upon one’s living standard or lifestyle.  Those which spend lavishly should have bigger tanks; otherwise, face the risk of losing a social stature when the economy goes sour or opportunity becomes evasive.  Failure to remember that life as a roller coaster has a downhill ride is one of the reasons why some famous actors become tramps later.

Given the present set-up of the economy, there is no more job security.  Even if business is going well, government’s rash pronouncements or ill-advised policies in the future may cripple the economy and cause unemployment.   The unprecedented pace of technological development may also drive a presently booming firm into obsolescence.  Even government institutions may shut down and be liquidated or be privatized. 

One may also be thinking of voluntarily giving up his/her job to explore other careers or set up a business.  Having an emergency fund will give a person that confidence to break away from the shackles of inhibition and fear.  People do not quit a strenuous post or even file for a leave from work because they are living from pay check to pay check. 

Given its importance, how does one raise an emergency fund?  

First, determine the goal. Calculate one’s total expenses per month and multiply it by three or by six. Make sure that all expenditures are accounted for, including maintenance repair of vehicles, insurance expenses and even those spend for vanity items. For a more comprehensive list, check out expense items in my previous post (Household Budget Calculator).               

Second, meet the goal. There are a number of ways to raise an emergency fund:

• Saving.  Tighten one’s belt, make a room for some extra cash and set them aside in a separate bank account.  The Kuripot Challenge may be a helpful technique in this area.  Or, one may opt to achieve the target slowly but surely by saving a fixed amount per month.  For those who prefer saving in a monthly basis, it may be effective to divide the target amount by the number of months over which you want to accumulate your emergency fund (e.g. P60,000 total emergency fund ÷ 12 months = P 5,000 per month).

• Subscribe to a Monthly Investment.  It may be more efficient to build up your emergency fund by subscribing to a unit investment trust fund or an easy investment program being offered by reputable banks or stock brokerage companies.  These institutions offer auto debit facilities which automatically deduct from one’s bank deposit the necessary monthly contribution, making the process of investing less rigorous and hassle free.  Do not worry about flexibility and affordability as the schedule and the amount of contribution are based on the client’s choices, as expressed during the application process or, if there will be a change of mind later, per modification made via said firms’ representatives or online systems.  As low as P1,000 per month, one can already start growing his portfolio side by side with developing his emergency fund.  Further, these types of assets are liquid enough, but turning them into cash requires certain procedures that may act as a kind of deterrence, unless the person is really in a pitch and is in dire need to do so.

• Set Aside a Windfall.  For those who find it hard to keep away from spending and leaving some balance at the end of the month, there is still hope --- the 13^th month pay, a fringe benefit or other similar bonuses.  Once you receive such windfall, do not ever touch it.  Put it in a one-time pay investment offered by established financial corporations, or deposit it in a separate bank account.

Third, hold on to the goal. Discipline in keeping an emergency fund is indispensable.  Its liquidity is indeed important because it is meant to finance an urgent need. Responsiveness is essential.  However, even if it can easily be tapped upon, do not consider an emergency fund as a spare or a buffer stock in case of a deficit.  It should only be used for paying for a serious, unforeseeable and immediate need.

The origin of the word economics is “oikonomia”.  It is derived from the Latin words “oikos” and “nomos”. Oikos means household, while nomos denotes management.  Hence, economics has its roots from household management.

Economics is a social science that deals with the production, allocation and utilization of scarce resources to satisfy unlimited human wants.   The shortage of time, energy and money forces one to choose which goods and services to create and consume.   Indeed, in a very micro setting, it is a primordial concern of every individual or a family to make ends meet.

Thus, for the benefit of everyone, I have prepared below a calculator which lists the usual revenue streams and monthly expenses for a household.  Just be honest in using the calculator and it will definitely help in showing one’s spending habits, spotting items that can be cut off and determining existence of potential savings. 

Household Budget Calculator
CURRENT BALANCE
Cash on Hand	P
Cash in Bank	P
Other Liquid Assets	P
REVENUE
Employment (Service Income)	P
Pension (Disability/Retirement)	P
Other Income (Paper/Real Assets)	P
EXPENSES
Mortgage/Rent	P
Groceries/Food Expenses	P
Clothing	P
Laundry Expenses	P
Salary of Maids/Helpers	P
Taxes	P
Electric Bills	P
Water Bills	P
Internet	P
Phone (Mobile/Landline)	P
Necessities (Toiletries, Vanity Items, etc.)	P
Auto Loan Payments	P
Gas/Diesel	P
Auto Maintenance/Repair	P
Commuting Costs	P
Insurance Expenses (Life/Medical/Home)	P
Educational Expenses (Tuition/Uniform/Allowance)	P
Leisure Expenses	P
Medical Expenses	P
Other Expenditures	P
Savings/Loss	P

Paul John F. Barrosa, MBA © 2017.

Top 10 Financial Goals

You have read my first post about Kuripot Challenge and your interest has been tickled.  However, you are not quite sure for what will you be saving for.  Well, no worries.  In a conference sponsored by Federacion Internacional de Abogadas and Integrated Bar of the Philippines-Camarines Sur, wherein our team was requested to help, this author chanced upon a noteworthy list of Top 10 Financial Goals any person must surely prepare for. 

The Top 10 Financials Goals are:

1.  Household Management

Let’s talk about basics first. Economics is derived from the Latin words “oikos” and “nomos”. Oikos means household, while nomos denotes management.  Hence, economics has its roots from “household management.”

Indeed, a primary concern of an individual, particularly Filipinos (who are known for close familial relationship), is how to make ends meet for the survival and prosperity of the family.  Groceries and bills are items that usually draw the first blood from our pay checks.

But beyond daily subsistence, we usually aspire for flat TVs, a comfortable mattress, a fine-looking sala set, or a lavish family gathering (e.g. birthday, baptismal, noche buena, reunion).  These expenditures require substantial amount of finances.    They may thus serve as your goal for saving and taking up the Kuripot Challenge.

2.  Emergency Fund

Saving to save for a rainy day is also important.   The Kuripot Challenge may be a vehicle for you to set aside substantial amount (about three to six times of monthly expenses) that you can use in case life surprises you – in a bad way.

In these tough times, job loss may knock anyone unexpectedly.  Even if business is going well, government’s rash pronouncements or ill-advised policies in the future may cripple the economy and cause unemployment.   At present, there are threats of pooling out business process outsourcing firms from the Philippines back to America.  Talks on banning the sale of products of certain industries may also lead to a layoff of many employees.

One may also be thinking of voluntarily giving up his/her job to explore other careers or set up a business.  Having an emergency fund will give a person that confidence to break away from the shackles of inhibition and fear.

3.  Health Protection

Health is wealth, cliché but undoubtedly true.   If one is ill, one cannot work and earn income. Further, costs of medicines and treatments may also prove to be a heavy burden to a person’s assets.

The reverse, meanwhile, is equally correct.  Wealth is health. Without money, one cannot avail of health services.   Absent proper and prompt medication, ailments can get worse, exposing the sick to higher risk of complications.

In order to ensure one’s well-being, it is best to save up money and invest in health insurance packages.  No one can ever be confident in one’s immune system.  Even those who regularly exercise also get sick.  And insurance firms will never knock on your door on times most needed. Thus, the only time you can prepare for times of bad health is when you are in good health – alive, alert, awake and enthusiastic.

4.  Income Conservation

Done with your family obligations and preparation for bad times, and still have extra cash? You may wish to take the Kuripot Challenge to pool in necessary amount for the minimum subscription rate in investment vehicles.  Investing protects your money      from losing its value as a result of the phenomenon called “inflation.”

Inflation is the rise in the general level of prices of goods and services.  A Php 5 cup of rice years back becomes Php 10 today because of inflation.  And, assuming a steady inflation rate of five percent, the price of same quantity of rice will double to Php 20 in 14 to 15 years from now.  Therefore, a Php 1,000 this 2017 can buy lesser cups of rice in 2032 (i.e. 50 cups) than this year (i.e. 100 cups).  As time goes by, inflation slowly eats away the purchasing power of your money.  

To overturn the said situation, your financial assets should grow even more than the rate of inflation. This is where investments come in.  They multiply your money at a given interest rate or at a potential internal rate of return, thereby conserving and even improving its purchasing power.  Thus, if you have extra cash, do not keep them idle.  Save, raise the necessary amount and subscribe to an investment tool.

5.  Large Future Expense

Another popular reason why people save is the fact that they wish to enjoy the glamour of life and buy something expensive. These luxuries may be a fulsome tour abroad, a brand new car, a designer’s bag or elegant jewellery.

Kuripot Challenge can be a technique for you to accumulate those thousands of Pesos needed to purchase said articles.  The desire to relish an exquisite item can serve as a powerful drive to muster the patience and determination needed to hurdle the challenge.

6.  Wealth Accumulation

Savings may also be used for starting up a business that can help accumulate wealth in a relatively faster rate.   Return on investments on real estate or business operations are significantly higher than paper assets.

Kuripot Challenge may be the platform you need to come up with that coveted amount to buy a franchise or put up your own store. For existing companies, particularly micro and small enterprises, the challenge can serve as a venue for raising the additional capital necessary for expansion.

7.  Education

Education is an effective medium for personal and professional advancement.  Either it be for your children or for yourself, a diploma is a valuable instrument to uplift one’s social and economic standing.

Obtaining that much-coveted folio is not a walk in the park though. It entails overcoming mental and physical stresses and, more than that, surmounting financial struggles.   Tuition fees, contributions for school projects, food, transportation and lodging expenses, as well as fees for extra-curricular activities will surely strain a person’s or even a family’s resources.  Thus, these are things one should save for.

8.  Retirement

Surely, no one will want to work for all of their lives.  Everyone dreams of becoming a child again – to devote one’s time to living rather than to earning a living. 

However, as we do not have the power to travel thru time or to unlearn the fact that there are bills to pay to live decently, stashing cash for retirement is essential.  There are variable funds offered by reputable insurance firms which require only one-time cash out.  Kuripot Challenge can be of great assistance in raising such amount.

9.  Estate Planning

Material possessions can never be brought with you in the second life.  But, you can leave them to your family.  They can be your legacy.

Estate planning is vital. If you know Batman, you will notice Bruce Wayne was orphaned in a very young age, but he is the Prince of Gotham because his parents know how to pass on to their only child their wealth. Perhaps, the butler Alfred is even part of the inheritance.

Kidding aside though, estate planning involves cost.  There will be fees to pay for the professionals and the lawyer who will take care of the paper works and will ensure your will is followed faithfully.  These expenditures must be taken care of while you are still in Earth.

10. Death Expense

Speaking of passing away, it is a certain phenomenon.  One hundred percent guaranteed, it will happen to everyone. Just always knock on the wood for it to not occur soon.

Being something inevitable, it is better to be prepared for it.  We have already been too heavy a burden to others while living, why continue to be on our death?  Expenses that our family will incur during wake and interment are payments for the casket, the last clothes to be worn, food to be offered to sympathizers, the flowers and other decorations, offerings for the priest and the Church, as well as the lot that will serve as the final destination.

A Starter for 2017

A new year is here.  A new era is about to unfold.  There will be new journeys and, of course, new experiences.

As for me, writing a blog is a new thing this 2017.  This has been an idea since I graduated from the University of the Philippines back in 2011, but due to certain constraints (like time and internet connection) I have only realized it this year.  Finally, I made it.

Now, procrastination can be productive.  And to kick it off, allow me to share a tip for saving substantial sum of money.  This may be in preparation for the Holidays twelve months from now.  Time flies so fast.  So better be prepared.

During times of procrastination, doing nothing but randomly surfing the Internet, I stumbled upon Kuripot Challenge.  It is a simple and easy exercise, though it may test your patience and determination in the long run.  

The challenge goes like this:  [1] pick a base amount (i.e. Php 1, 5, 10, 20, 50 or 100), [2] start the first week saving the base amount you chose, [3] add the same amount every week for 52 weeks, and [4] never touch your savings until the last week.

 

Below are tables that show the amount you have to contribute per week and the total money you will be able to save at the end.  Of course, as with any challenge, the higher the difficulty, the better the rewards will be.

A Mega Kuripot Challenge of Php 1 will yield Php 1,378.  While Php 5 and Php 10 will result to Php 6,890 and P13,780, respectively.  If you have extra cash, you can try the moderate Php 50 Kuripot Challenge which will lead to a tremendous saving of Php 68,900.  Treading the extra mile, a Php 100 base will produce a handsome reward of Php 137,800.

Many may ask: Why is the contribution per week graduated or compounded?  In a quest or a game, things become tougher the higher level.  This is because a player is assumed to be accustomed to the game play and is therefore ready to face more complex situations. It is also the same with the Kuripot Challenge.  Once you hurdled saving Php 50, you already know how to control your buying impulse and cut down expenses.  You already realize that not buying soft drinks, cigarettes, beer or a Starbucks coffee is beneficial – both physically and financially.  

Take note though, the Kuripot Challenge is between you and your goal (whatever you wish to buy).   If the graduated contributions become too taxing, there is no harm in sliding down bases/notches or saving at a fix rate per rate.   For instance, in Week 40 of the Php-50 base requiring Php 1,000 contribution, one may opt to slide down to the Php-35 base and just chip in Php 700.  Another alternative is to just save a steady amount of Php 500 per week.     

In times you get a windfall, such as obtaining your 13^th month pay, receiving a bonus or winning the Lotto, you may deposit more to cover the other weeks or save in advance. Remember you have taken the Kuripot Challenge for something that you really want.  The end of the tunnel is both your glimmer of hope and your destination.

If you wish that 2017 be a fruitful and productive year, have courage and take on the Kuripot Challenge.  Stop procrastinating, and just do it!