Emergency Fund: Is It Really Necessary

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By Violeta Depalog / December 1, 2015
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Why is it necessary to build your emergency fund before you start investing?
According to financial experts, an emergency fund is an equivalent of our 3 to 6 months monthly salary that should have been accumulated in your savings account. It has also been strongly recommended by these so called financial experts that one must build an emergency fund before venturing into any investments like the stock market.


My Mistake

When I started with my stock market investment, I did not have enough emergency fund. I was so eager that I haven’t listened and followed what I heard, watched and read about the importance of emergency fund before investing. I thought it was that easy. I thought I can manage my investment even without my emergency fund thinking that I am receiving a regular monthly salary for teaching anyway. I thought I can do them both at the same time. But now, I’ve realized my huge mistake.


What Are Emergencies? 

We cannot predict emergencies that’s why they are called emergencies in the first place. Family members will send us a message of a sudden illness, untimely death, tuition, accidents anytime. We may also face termination of contracts ANYTIME particularly to OFWs like me. If you are in the BPO industry, termination of contracts because of closing of accounts or sometimes due to the inability to reach a particular sales quota is also common. 


Risk of Not Having an Emergency Fund

So, if you are already investing in the stock market without an emergency fund, then suddenly you come across with the situations mentioned above, your investment is at risk. You may either sell some or sell all, and the worst is selling your stocks in a down market ruining your future.
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My Emergency Fund Like Before Investing
I have received messages informing me saddening news of illness, death, and some other emergent financial needs within the family while already investing in the Philippine stock market. I could not take the risk of selling my stocks at lost to augment these needs of my family. So even though I did not dare to touch my stock market investment, I succumb to bad debt (loans) and delayed payment of my insurance bills and other lined up financial commitments to come up with the needed amount.  
 

My monthly budgets often go into ruins because in the absence of my emergency fund, I have to use my monthly salary which is already allotted to my different monthly obligations ahead of time to finance the emergencies that popped out.

There are few times that I have to skip putting money in the stock market because if I do, I may no longer be able to eat. Yes, I am not exaggerating. It’s the truth.


What Should I Do?

After experiencing the same cycle, over and over again, I’ve realized that I should have listened to the experts. I should have listened to one of the Truly Rich Club’s advocacy which is creating emergency funds.

 

So, although it’s a little late for me, I am now doing my best to get out of my bad debt and start saving for my emergency fund step by step, little by little, so I will be able to continue to build my wealth without the risk of sabotaging it in the future. I won’t wait until I will be forced to sell my stocks in the wrong time because it’s the only option I’ll have. Don’t do the same mistake. Have an emergency fund first before investing. Yes, it is really necessary especially if your only source of income is your monthly salary.

 


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