Mid-year bonus? Consider building your rainy day fund

Aneth Ng-Lim

Posted at May 27 2019 10:43 AM

MANILA -- We can soon say goodbye to the hottest time of the year and say hello to the monsoon season. Are you ready for sudden downpours, muddy streets, flash floods and more?

From those comments, you can see that I am not a fan of the rainy season. I like watching the rain from the window of my living room, not walking in it and sinking my shoes puddle after puddle. What also frustrates me is that I can never be prepared for it. For some reason, when I bring an umbrella, the skies stay clear. But when I am wearing my best shoes, or favorite dress pants, it’s like the rains conspire to fall down and bring me down with every drop from the sky.

We can draw parallels here when it comes to being financially ready for emergencies. Because we do not like to think that bad things may happen lest we invite them, if and when financial crises strike, most are unprepared. And it is in these times that people become prey to loan sharks. Desperate to raise cash urgently, there is no time to look for best payment terms and lowest interest rates. If you find yourself in such a situation, all you will ask are where do I sign and how soon can I get the cash?

So, how can you make sure this does not happen to you, and protect yourself in case of financial emergencies?

#1 Are you saving?

One sure way to protect yourself is to have savings. According to the National Baseline Survey on Financial Inclusion (NBSFI) conducted by the Bangko Sentral ng Pilipinas (BSP) between 2014 and 2015, only 4 out of 10 Filipino adults were saving. Three out of 10 saved in the past but have stopped, while the rest never experienced saving money.

The NBSFI is the first nationally representative survey of Filipino adults where data was collected in face-to-face interviews with 1,200 adults across the country, aged 15 years and older.

Among those who save, 63 percent cited their main reason is to have something to use in case of emergencies, while others do so for future expenses on food and education. These are all great priorities, and it looks like many are on the right track and we just need to get more people to save.

#2 Are you saving enough?

But while saving is good, you also need to have a goal so that your rainy day fund will be enough to cover for, well, the rainy days.

In its 2017 Report on the State of Financial Inclusion in the Philippines, the BSP tracked 57.1 million deposit accounts in banks from 45.3 million depositors with outstanding balance of P11.7 trillion nationwide. But only half (48 percent) of the total value of deposits came from individuals, as the rest were held by government institutions, banks, and private corporations.

When we look closely at the individual depositors, majority of the accounts have balances of P5,000 and below (62 percent) and only 4 percent were above the maximum deposit insurance coverage of P500,000. Sadly, P5,000 or less will not go far in case of emergencies.

Financial experts used to recommend to have enough saving to cover at least 3 months’ worth of expenses. In recent years, they adjusted this to 9 months’ worth. A rainy day fund is defined as a reserved amount of money to be used in times when your regular income is disrupted or decreased.This can happen if you lose your job, or have to pay unexpected medical bills.

Based on current consumer prices, P5,000 savings will not go far so it’s not enough to save, you have to also save enough.

#3 Make saving your priority - now.

Before the rainy season is officially here, commit to start saving or to save more. If you have a mid-year bonus coming up, place all of it or as much as you can in savings. Begin a budget and stick to it. Tighten your belt and say no to extras for now, like taking a taxi instead of the bus. Put your credit cards away because the rainy season is also the sale season when stores want to clear up their inventory mid-year. Look around your home and sell items you don’t really need.

When putting money away for a rainy day fund, make sure it is not so accessible. If it comes with an ATM card, do not carry it with you so making a withdrawal won’t be too easy. Some useful tricks to consider: one, automate your savings so you don’t even see the money disappear from your salary account to your rainy day account; two, choose high-interest accounts that award you more interest if you do not make any withdrawals; and three, consider multiple accounts so that each account can be for one goal like tuition and you do not mix up your funds and unknowingly spend it for a different reason.

Saving is never easy, it’s spending money that is. But it’s saving that will let you sleep better at night and it’s one habit that will surely reap rewards.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.