You may think you’re budgeting for all of your needs (and wants), like retirement, vacations, education and more, but still Filipinos are getting blindsided by unforeseen or ‘surprise’ expenses, ones that could have been easily prepared for. I call these ‘surprise expenses’, because they seem to come out of nowhere. If they’re not something recurring on a regular basis, we don’t usually know about it.
To help you get a better understanding of how much money you should save, here are the 4 expenses you should be planning and preparing for.
#1 Basic Financial Emergencies
What’s considered a BASIC financial emergency? These are expenses that catch you off guard and leave you financially stranded. Some examples include the following:
- You’ve lost your job, and need to continue paying rent, bills and other living expenses.
- You have a medical or dental emergency.
- Your car breaks down, and is your primary mode of transportation
- You have major household repairs, like your aircon breaks down on a summer season, your roof is leaking, your toilet is overflowing, etc.
- You have bereavement-related expenses, like travel costs for a family funeral.
HOW TO PREPARE FOR IT: Save Money and Call it Your Emergency Fund. An emergency fund provides the reassurance of knowing you have money to fall back on during an unexpected life occurrence. Depending on your lifestyle costs, save three to six months of your living expenses. An emergency fund should be easy to access in the event of a basic financial emergencies. If starting an emergency fund feels overwhelming, start small. Setting aside a small amount on a regular basis will help build up the fund over time.
Related Post: Build Your Emergency Fund
#2 Major Financial Emergencies
What’s considered a MAJOR financial emergency? These are unpredictable expenses that are hard to pay for from cash savings alone which can potentially leave you financially ruined. Some examples include the following:
- You’ve become disabled or have a critical or chronic illness.
- You car was in a major accident and is seriously damaged.
- You lost your home due to fire or flood.
- Your spouse passed away and you would’ve needed to replace her income to support your children or to cover mortgage debt so you wouldn’t have to sell the house.
HOW TO PREPARE FOR IT: Be Protected and Get Insurance. Insurance plays a vital role in preserving what you have worked hard for. It gives you peace of mind and you knowing that if anything happens to you, your family or your home that you will be financially secure. The most important insurance you should get would be life, health, and property (home, car, etc). Life insurance assures your dependents would receive a certain amount corresponding to your plan upon your death. Health insurance, on the other hand, focuses more to providing medical coverage when you need it the most. Property insurance provides financial reimbursement to the owner of a certain property (home, car, equipment, etc) in the event of damage or theft. What and how much insurance you need, however, ought to be carefully planned to match your unique situation.
Related Post: Who Needs Life Insurance?
#3 Your Goals and Dreams
Just because you decided to live below your means doesn’t mean you have to stop living! It is also important to save and budget for things that are personally fulfilling to you. Some examples include the following:
- You want to take your family or loved one on a holiday vacation.
- You would like to send your children to good private schools.
- You want to have the perfect wedding.
- You dream to have your own car or buy a house.
HOW TO PREPARE FOR IT: Invest and Make Your Money Work Hard for You. Investing for your goals helps to ensure you’ll have the savings and income you need to live comfortably, travel or pursue whatever new dreams you choose. Investing makes it easier for you to prepare for your financial goals. Once you’ve identified your financial goals and established a spending plan, know what you’re saving for and how much you’ll need to get there. Investments are usually made in assets such as stocks, bonds, real estate, and mutual funds. For short term goals, place your funds in a fixed-income or bond investments. For longer-term goals, allow your money to grow in equity investments.
Related Post: 5 Ways OFWs Can Invest in the Philippines
#4 Future Essential Expenses
These are expenses that we predict that more or less is sure to happen in the future and will include the following:
- Retirement – When you reach a certain age, you become unfit and unable to work. When that moment comes, you still need to have money to spend for your everyday living expenses.
- Long Term Care – When you reach a certain age, you need money to pay for the care you need should you no longer be able to care for yourself, ensuring that you won’t be a burden to your family. This also includes having enough to pay for future medical and hospital bills as you get older.
- Funeral or Burial Expenses– All of us will pass away sometime in the future, so someone would have to have money to pay for your basic funeral costs, body preparation fees, burial plot, casket and/or cremation jar.
- Estate Taxes – The wealth you’ve accumulated over your lifetime must be planned ahead to how to properly distribute their wealth to your heirs after your death. With that, payment of estate taxes is unavoidable and necessary to plan for it.
HOW TO PREPARE FOR IT: For retirement and long term care, Start an Investment Fund. For funeral or burial expenses and estate taxes, you can avail of pre-need and insurance plans.
Don’t stick with the “Bahala na” mentality. Set aside money for unexpected emergencies and prepare for future and anticipated expenses.