But, he would tell me that the amount is fine since there’s two of us in that account. He said I was literally taking the financial rule book. He said
When I thought of it, he has some points right in there, but I still believed that we have to increase the amount of our emergency fund soon. Let’s go dissect our emergency fund setting here, shall we.
What is an Emergency Fund?
An emergency fund is this stash of money you get if you are caught up in an emergency. And by emergency, I mean the real life emergency — you got laid off, your mom suddenly needs extra medication money or any similar income-threatening issue.
No, “emergency” clothes or car shopping doesn’t count. Do you really have to ask that?
Also, the emergency fund should be accessible at all times so you could get the money in the earliest time possible and in the most convenient way possible.
You should either place it in ATM banks or save-up accounts. In our case, we placed it in a pass book of a bank which have branches located inside the malls. It is an OR JOINT pass book account.
Why do we need to have one?
The emergency fund buffers a lot of things. It can:
- protect our assets from being pulled out when there’s an emergency
- allow us to live the same lifestyle that we have for a couple of months during job transitions
- alleviate our stress when the real emergency comes
Why did we decide to put our fund into one account?
Basically because we wanted to speed up our finance building and we have other priorities on the line. We also figured that a relationship is a give-and-take process and if one is in the pit, the other could just raise the needy one up. We did just that a couple of times already (financially speaking) and it went well. And, it is most unlikely that we will be having both emergencies at the same time, so we both agreed that 3.5 months x monthly income is enough. For now.
I still have plans of doubling our emergency fund in the near future after some priorities have been accomplished and when our responsibilities do widen (think of future kids). I am also thinking of tweaking the way we store our emergency fund. This brings us to the next point of this discussion.
Tweaking out our Emergency Fund
Remember I told you how we would argue that we should not place a whole lot of money in our emergency fund because it doesn’t grow? Well, I had this idea when I was browsing through some financial articles. (Shame for not remembering the link). We could finish saving up to the amount that we have agreed on our passbook. That amount would be like equivalent to 60% of our ideal emergency fund. The other 40% can be placed in another bank’s UITF. That UITF is a money market account, the safer ones. This account has no holding period so I could just withdraw the amount anytime that I want it.
So again, let me repeat the important tweak notes that you could use for yourself:
Divide your emergency fund into two — a savings account and a bond fund.
A save-up account can be a good place for the second portion of your emergency fund as it offers life insurance basing on the amount that you have on that account. (Read more: BPI Save-up account)
A unnecessarily large amount of emergency fund can harm you too. It gives little yield when placed in a safe place like your ATM account so you’re like losing money when you just leave extra cash in there.
Would you consider pooling your emergency fund with your partner?
With my points presented, are you convinced to share your emergency fund with your partner yet? Maybe you are. Maybe you aren’t. However, before thinking about this move, you should be sure that you and your partner have serious plans on living your lives together. Talk about your relationship first. And if you’re both sure of each other, then it’s time that you talk about money. Start with your emergency fund. It’s the first step.