On Emergency Funds

As I mentioned in one of my previous wealth management posts, our financial planner, Efren Cruz, clarified that the emergency fund should be worth the cost of expenses for at least 3 months. This was a major eye opener because all this time I thought the emergency fund should be basic salary times six. We are big on savings so the difference of the expenses and salary is quite significant.

What is an emergency fund?  As the name implies, it is the fund that you set aside for emergencies such as loss of a job, illness or any unexpected major expense. One of the cardinal rules of investing, I read, is to have an emergency fund first before actually investing.
One of the questions I asked Efren is that “is there a way to maximize the returns of our emergency fund?”.  Would it be wise to invest it in low risk instruments?  Efren said that the EF should be placed in a monthly time deposit so that it still earns somehow but we can pull it out anytime. We also placed several weeks worth of EF in a savings bank account that has an ATM since emergencies may take place during non-banking hours.

And so, we recomputed our emergency fund, consolidated it and parked it our trusted government-run bank (let’s use TGRB, ok?). Why government-run? Someone told me that government banks are more stable than commercial banks since they run on the citizen’s taxes. Not sure if this info is true but it does make sense.

Some learnings from our experience in opening an account for our emergency fund

– Banks require two official government ID’s. Company ID’s are not considered official.
– A friendly customer-service-oriented branch manager makes the banking experience a lot better. In general, I don’t like banks.  The offices are boring and services have a lot of opportunities for improvements.  We love the branch manager and staff in TGRB, though. I only brought one government ID. Because the branch manager knows us, she allowed me to open the joint account and submit my ID on another day. I also like that she calls every roll-over date to confirm if we will retain our monthly time deposit.
– There is such a thing as aggregate interest. Franco’s parents also have savings with TGRB. The branch manager, gave us a better interest rate based on the sum of our emergency fund and hubby’s families savings.
– Don’t forget your old signature. Hahaha. Franco had an account with TGRB even before we got married. We closed that account and opened a joint one. The process got longer than necessary because hubby forgot his signature 10 years ago!
– One of the things that bother me nowadays is estate tax. When we die, our beneficiaries may not get the full amount of the investments that we will leave behind. The government will take out estate tax. Grrrr! Being a product of a state university, I am thankful to taxpayers for financing my education. However, now that I am working and see my payslip, I can’t help but wish that one third of my salary does not go to income tax. Imagine, how much more comfortable our lives would be if we get that our salaries in full? Sorry for disgressing. I asked our branch manager if there are ways to avoid paying tax estate or at least reduce it. She bit her lip and told me there are ways but she can’t tell me. Hahahaha! Can someone please tell me?
– PDIC insures deposits only up to 500K per depositor. That means if I have 300K in time deposit and 450K in regular savings, should the bank declare bankruptcy, I will only get a maximum of 500K.

Here is a very informative post on emergency funds.

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10 thoughts on “On Emergency Funds

  1. LJ says:

    if you can’t post the name of the bank maybe you can
    email it to me? I really want to start doing something
    with my finances,(i started with health insurance,
    and changing my SSS status into voluntary) and I read this post bout EF…
    i’m single and i think this is VERY important since I live independently.
    thank you!!

    • Hi LJ! It is great that you are doing something about your finances while you are single. When you start having a family, the finances would take a back seat for the first few months or years because of your house and or baby. I will PM you the bank name. 🙂

  2. LJ says:

    hello! i’m your new follower..hehe, your blog is very informative and I now usually spend my vacant time during work hours reading your blogs and other moms in N@Wie..

    i just have a questions, what bank do you have your EF that is in monthly time deposit?

  3. vanessa says:

    Maybe you could include your dependent as co-depositor in your accounts?
    My dad would also always leave us a blank check whenever he goes abroad or when he had a major operation.
    I’m interested to know about other ways.

    • Vanessa, thanks for sharing your practice. I will discuss that with hubby.
      our accounts are mostly joint accounts naman. what i am worried about is what if both hubby and i pass way, I think no choice but to pay estate tax. If I am not mistaken, kids below 18 yo can not be codepositors yet.

  4. Thanks for sharing your experience sis…i’m learning so much from you. I’m probably 3 steps behind you in terms of financial planning 🙂
    BTW, I’ve talked to Rebecca and she already submitted proposals to me. Thanks for the reco.

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