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.