The general rule of thumb suggested by financial gurus is 3-6 months' worth of expenses/income. Is it really enough? My personal opinion is…it depends.
For example, for a single person with an income of ₱30,000 without dependents, three months is alright. But if this person has dependents such as their aging parents without insurance, that changes the situation a lot, right? This person could be one hospitalization away from debt. This will also be true for "sandwiched" married individuals supporting both their parents and own family. Some people would just say that it's not your obligation and in some ways, in a utopian world, I agree with this sentiment. But truth be told, we just can't stand and watch when our loved ones are in a difficult situation. This is why I think building an EF is very personal because we have our own unique circumstances.
The pandemic also taught us that we may be out of our jobs for more than 3 months. And this could just be a recency bias on my end, but the uncertainty I'm feeling during these times makes me extra anxious. Many people lost their jobs in a snap and due to lockdowns, they couldn't find a replacement. Businesses closed down because bills didn't really stop coming. Getting COVID can easily burn your entire life savings and assets in hospital bills. It made me evaluate whether our own emergency fund stash is enough. It wasn't.
So, how do you evaluate whether you have enough to weather life storms? I suggest:
Determine by how many months' worth of expenses you'll want to cover in case you lose your job- more than or equal to 3 months is already good. I have mine set at 1 year because that makes me feel at ease.
List your personal "emergencies" - this should cover those that will require large amounts of money, like hospitalizations or keeping your small business afloat during lockdowns. For example, you can put parents' or pets' medical emergency as part of it. (If you have medical insurance to cover it, then good for you! You're already one step ahead)
Create a budget for each of these emergencies.
One may argue that #1 should already cover #2. But I'm always conservative on my calculations, especially for emergencies requiring big sums out of the pocket. For example, you lost your job plus a loved one needs to be hospitalized, or you need to do essential house repairs.
Emergency funds act like a sandbox when life pushes us to the ground. The future may be bleak during these times, but I do think that uncertainty keeps us grounded. We may not be able to cover all permutations in life, but building a safety net whenever no-so-good things happen will keep you sane and safe during these times. Your future self will surely thank you for being able to project your own misery. Stay safe, everyone!
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