An emergency fund prepares you for life’s uncertainties. It is a foundation of good personal finance. Why do you need it? Here are the scenarios when it becomes useful:

• A loss of employment
• When you get sick and need hospitalization
• Major changes in your life

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An emergency fund can save your life in the event that something bad happens. Also called a cash cushion, an emergency fund is money saved for the unexpected.

How much should be saved in an emergency fund? It depends on your living expenses. Your emergency fund should cover at least three months’ worth of your living expenses.

Why is an emergency fund important, and why should it come before investing? Here are several scenarios:

Loss of employment

Losing a job can happen to anyone for various reasons, including company restructuring or downsizing. An emergency fund will allow you to survive until you find your next employer.

Getting sick or meeting an accident

Recovering from illness and injury entail medical costs. Without an emergency fund, you are forced to spend money that normally pays for your living expenses.

Life changes

Not everything unexpected is negative. Even when it’s unplanned, a pregnancy is considered a blessing. However it also comes with prenatal care expenses, as well as long-term changes to your lifestyle.

Investing in insurance

An alternative to establishing an emergency fund is investing in insurance. Insurance companies provide protection in the form of a big payout to you or your family, if something bad were to happen to you.

However, unlike an emergency fund that you can use anytime you need it, insurance has certain conditions where certain emergencies are not covered. You also cannot “withdraw” it as you may from your savings account.

If you plan to invest in the future, it is important that you first build an emergency fund . Without one, you’ll have to cash in your investments to pay for the unforeseen cost of an emergency.

For more information on how to get a health protection when you open a Metrobank account, visit https://metrobank.com.ph/AXA-personal-accident-insurance

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This article is part of a collection of stories and practical financial tips that are published with the goal to help people learn from the experiences of others, and to pick out lessons on personal finance and sound money habits beyond the pandemic.