Adulting 101: Prepare an Emergency Fund and its importance to BCH holders
In the last article of this Adulting 101 series, we have discussed about the importance of tracking our finances. We went over the ways how you can track your money and I have also given a free finance tracker format for those who want to get started.
Today, I want to go over another important aspect of financial freedom which is peeparing for emergencies without being buried with debts.
But first a small disclaimer, I am not a professional financial advisor. Everything I share on this article is based on my observations and own research. Thus, this article is not meant as a professional advice. DYOR is highly recommended.
When life happens
I think I do not speak for myself when I say that sometimes things happen that put an unexpected financial strain in our lives. Growing up, I have seen many people borrow money from others just to survive the emergency. However, most often than not, the interest kept piling up until the borrower is burdened with debts they cannot pay off.
These emergencies might include sudden medical diagnosis that needed urgent treatment or medical emergencies where money is needed to save the life of your loved one. Sometimes it could include accidents where you are out of commission for months yet the bills continue pouring in despite not having an income due to the accident. Or maybe a natural disaster occured that wrecked your place or took out some important things that you need and have to be replaced like laptops, phones, or other things that you usually need.
When this happens, you might turn to others for help if you are not prepared. You know the saying that "better be prepared than sorry" is very applicable in the journey to financial freedom.
What is an emergency fund?
An emergency fund is basically an allocated amount of money that can only be used for emergencies. It is not to be used for vacations or other big purchases that are unneeded but rather emergency fund is only used for times where money is urgently needed such as the emergencies I mentioned a while ago.
Based from my research, there are many ways you can set up an emergency fund and how to compute for the amount. But the baselime is that it must be enough to cover at least 3 months of your monthly expenses. Your emergency fund must have enough money in it to cover all your monthly bills, credit responsibilities, food, rent, and other necessities that you have if you live alone, and that your family has if you are a breadwinner.
Some advices I encountered though are saying that emergency fund must be equal to your 3-6 months income. So if you earn P20,000 per month, you must have around P60,000-P120000 set aside for emergencies.
You might already be thinking that it is impossible to do since it is a big amount of money for ordinary people. But I have a story to share with you about why building up your emergency fund is a must.
If only they had emergency fund
I have an aunt and an uncle who love to take out new cars or motors on a credit. Since they both have works they are confident they can pay off the monthly payment for this.
The first time it happened, they got a brand new motorcycle. I do not know much about it but I heard them bragging about how it is a new model at the time and how expemsive it was. Then a few months later, I sae that the motorcycle was no longer theirs since they failed to pay the monthly payments consecutively due to some emergencies they had.
It might just have been a little hiccup in their lives though so they got a new car after a year. This car is great since it provided them extra income since my uncle use it to drive for Grab. So they can pay for the monthly payments using the income the car generated for them. It would seem like they learnt their lesson.
Then pandemic happened, and both of them lost their jobs for a few months. They had no savings or anything. They had been paying for this car for more than 3 years out of the 5 years payment they have to finish. But because they were unable to continue paying for it due to the pandemic, they had to return the car.
So in the end, they paid 3 years worth of money with norhing to show for it. It is a sad thing to witness. If only they had emergency fund. They could have continued paying for the car for a few months as they get back into their feet. But alas, they were so confident with their monthly income that when it wss suddenly cut off, they did not know how to pay for their necessities.
Importance of emergency fund for BCH holders
I am sure that many of us have encountered the need to convert the BCH we have because of an emergency. Despite knowing that we are selling at a loss, we could not do anything but convert our BCH anyway since this is all we have.
Now imagine if at the peak of BCH, we set converted some for emergencies. Then we will not have to sell at a loss because we have some money set aside.
Having an emergency fund will ensure that we will not have to touch our BCH during the red market. Because we all kmow the heartache of selling when the chart is going down.
Sure, we could use BCH as our emergency fund but do you think it is a good move? Remember crypto prices are volatile so you might have set aside around P60,000 worth of BCH at one point as your emergency fund. But when the emergency finally arrives, the BCH price is halved so instead of P60,000 your emergency fund is now around P30,000 only.
So what should you do?
You should slowly build up your emergency fund. You do not have to complete it all in one month since that is unrealistic. But be sure that you are regularly putting aside money for emergencies and make sure not to touch it except for emergencies.
Some of you might be rolling your eyes and thinking that I do not know what I am talking about. But trust me, I have been on both side of this situation. I have been on the side where I have money set aside for emergency so when an emergency came I was not scared or worried that much. I did not hsve to touch my investments at all because I have some extra. And I have also been at the side where I had to sell my investements (not just BCH) at a loss since I badly needed the money and I have yey to refill my emergency fund.
I am leaving it up to you to guess which situation I prefer to find myself in.
Closing words
Emergencies are a part of our lives. We can not predict when it is coming but we can always prepare for it. In the next article, I will try tk share some of the things you have to consider when setting up emergency funds and where you should store your emergency fund.
But for today, my article ends here. Hopefully, this article is helpful in making you realize how important emergency fund is.
This is a part of the Adulting 101 series that I am writing. You can read the earlier articles of this series here:
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My emergency fund is cryptocurrencies. I have always complained that I have not been able to float my cryptos for as long as I want, but this is because I have had emergency situations, like when my son got sick and we had to hospitalize him or when I crashed my car. These are situations where I resorted to what I had saved in my wallets. Cryptocurrencies have never let me down. Actually only since a month ago I started looting BCH I hope I can collect at least 2BCH and keep them for a long time or until I really need them.