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by elmads

Have you ever experienced unexpected events in your life? such as, your car broke down in the middle of the road while going to work, or a water pipe suddenly burst in your toilet. It surely is a pain in the head to find time to either fix it yourself or to find and hire someone to do it for you. Either way, you still need time and money to do both, but wait do you even have that extra money for those unexpected expenses?

How about, what if an unpredicted economic event happens in your life, then you lost your job? just like what transpired in the early days of the COVID19 global pandemic. Will you still have enough cash to support your needs for weeks, months or in the worst-case scenario for years?

People tend to disregard the doom and gloom possibilities in life when good times are rolling. And, most people think that crises only happen on rare occasions, this is the reason why they just spend their hard-earned money by mostly purchasing goods and services such gadgets, clothes, fancy cars and others more, which they would not even mostly need. Then bam! the unforeseeable crisis occurs, either in a personal level or in a worldwide scale, where most people are unprepared off resulting for some of them to go financially under just because they are not prepared for it at all.

Nevertheless, people should not fret on such life uncertainties as there are monetary saving ways in which we could manage it in order to cushion, if not completely avoided, the impact of such events in our life.

In this blog, we will discuss the 4 main categories that people need to be a part of their financial priorities in order to have a sense of safety and security within themselves and their families. 

Rainy Day Fund

In our world, it is natural and expected to have rain every now and then. The chances of it happening differ from one country to another, some will have higher probabilities while others are lower, nonetheless rain always occurs.

With this natural weather phenomena comes the preparedness of us individuals, by making sure that we have umbrellas, raincoats, extra clothes and shoes to make sure that we are protected, as much as possible, from getting soaked from it. The same principle applies to saving money for a rainy-day fund, the only difference is that instead of preparing for the impending rain we will be preparing for the possible expenses that may occur in the future, which is dependent on the set of belongings that we have and usually use.

Yes, you read it right. You my dear readers need to, as much as possible, know all of your belongings that you routinely use in your activities of daily living, namely your car, home, washing machine, air conditioner or boiler (depending on the country you live in) and many more. You might ask why? as like with the inevitability of rain to occur, our equipment and belongings will eventually get old, rust and breakdown due to wear and tear. It is bound to happen.

We could start first to do an inventory of all of our important belongings. We can do this in various ways such as writing it down on a piece of paper, or record it into our phone or laptop.

After we have done this, we need to do a calculated forecast on what are the possible problems that may occur with it, just like the possibility of a leaking water pipes in our home, a hole in our tire, a cooling system problems with our fridge and many more.

Then we must prioritize which one will more likely to break down sooner, and how much would it cost, as this is where we will depend the amount we need to save for our rainy-day fund.

For instance, I use my washing machine almost every day after work to wash my clothes, it is essential for me to have it cleaned ASAP because I work as a nurse, and I am exposed to patients with COVID19. My current washing machine is almost 3 years of age, and because I use it frequently, I assume that it will most likely breakdown sooner compared to my other stuffs. I estimate that it would cost around £50-£200 to have it repaired depending on the defect, or if the repair will be too expensive, then I would probably purchase a newer one.

Rainy day funds are usually for smaller expenses, they are for one-off expenditures (one time payment only), and are outside our normal living expenses.

Saving a small amount for this fund will always depend on our individual circumstances, such as our financial capabilities and the number of equipment and things that we have. Nevertheless, It will always be beneficial and prudent for us to save for foreseeable maintenance expenses, instead of tapping money into our other savings bucket, or most especially rather than going into debt.

Emergency Fund 

People argue that emergency fund and rainy-day fund are the same, and could even be joint together in the same bucket of savings. This is true in terms of joining both the two together, but it is not a fact that they have the same purpose.

Emergency funds’ purpose is to cover unexpected life events that are at a level that could cause havoc in our financial life, such as a permanent job loss, physical injuries or serious medical illnesses.

The estimated initial amount saved for an Emergency fund should be around a thousand GBP/USD (in PHP it would be around 30-50 thousand). Unlike the money saved for a rainy-day fund, which is responsible to cover our maintenance expenses. The money saved for an emergency fund should always be higher than our rainy day fund, because it deals to financially cover any unexpected life situations that is detrimental to our financial life.

It is highly advised to save for 3-6 months’ worth of our monthly expenses as an emergency fund. To illustrate, if our expenses amount to £1,000 per month, then we should have around £3,000 to £6,000 in savings for this.

However, it is not a rule of thumb to just save 3-6 months’ worth of our expenditures, because this will depend in our income and job. Some individuals have fluctuating income per month, and it could be better for them to save for more than 6 months due to the uncertainty of how much salary they will receive for the next month. Whereas, other people have a steady income stream and are working in industries that always have a demand even during a crisis. Such individuals could just save money for 3 months worth of their expenses as an emergency fund due to the stability of their wages.  

In conjunction, keep in mind that there is no limit to the amount we could save for this bucket. The more we have for this fund the better. It will serve us as cushion and security for unforeseen events, like with pandemics, financial crises, inflation and many more.

Always expect that life will test us with problems in the future. Light and Dark are two natural factors of life.

Life Insurance

Emergency! Emergency! Code Blue! Code Blue! The usual paged announcements that I hear in the hospital when I was still working in the Emergency Department in Philippines. These emergency cases differ from the usual heart and lung related emergencies to the morbid vehicular accidents or worse, criminal acts related.

Almost every day, there were different life and death cases in the ER department. Some of these patients were fortunate to live and continue their lives, while others are not. It opened my eyes to the reality of how life can be fragile, and at the same time how life can beautifully be brought into this world by a mother giving birth to her new-born baby. Also, on how life can be taken away in an instant due to different diseases and accidents.

Several questions popped up in my mind during those times. One of which is, how are the family members doing after they were left behind by their loved one who passed away? were they still dependent on the person who died, or are they fine both emotionally and financially?

A study shows that the expected dependent children below 15 years of age will increase to 23% worldwide in the year 2050. Take note, the study does not include 16-year-old and above individuals, family members who are dependent to one or two specific members of their family. Therefore, this number can be higher in terms of financial dependency to a certain family member, usually the parents.

It is all important that parents or even those persons who are breadwinners, to always think of their loved one’s financial status if the worst comes to worst. As providers for our family, we need to secure their financial future even after our possible time of death arrives. Is it too much to think of the inevitable? people always shrug it off, when in fact it is a normal process of life. Birth to Death, “Memento Mori”, remember you have to die.

With this in mind we must always ask ourselves who will be the one providing for our family once the inevitable happens? do we have enough savings for them? if not what are the other ways? and this is where life insurance comes in as an importance to our financial planning. This is what you call financial protection not for yourself, but for your significant others.

There are several life insurance policies, and all of them have their respective advantages and disadvantages. As a DIY saver and investor, I prefer to focus on Term-Life insurance which is a straightforward protection to my significant others when – I – the family provider passes away.

Life insurance works as a contract between two persons, you (as the policy holder) and an insurer who promises to pay you a certain amount of money when the time of your death comes, in exchange for a payment (commonly called a “premium” in terms of insurance jargon) usually monthly but this can be different depending on the contract and the insurance company.  

People say that they will just save a significant amount of money instead of subscribing into a life insurance policy. To be frank, some individuals do not see the bigger picture of what life insurance provide. They actually give approximately 5-10 times the amount of money you could ever save in a year. I recommend you to search the different life insurance coverages in your country and compute if you could save the monetary amount of the different insurance coverage they offer, after a year of your salary. The main purpose of life insurance is for monetary assistance for the people that will be left behind when the family provider passes away.

One particular scenario is, what if we die after a year from now, do we have the hefty sum of money for our family to survive an amount to 5 years or more of their essential expenses? Let’s say our yearly expenditure is £10,400, then for 10 years that would amount to £104,000 ,which means we need that same amount to cover our family’s 10 years essential expenses.

For the average person, that is us, this would be an insurmountable and overwhelming amount to save for just a year or even 5 years, considering that we also need to plan for our expenses and savings for both our present and future life. See sample photograph below.

When planning to purchase an insurance policy one must always lean on insurance companies who have a long-term track record of providing good coverage to their policy holders (these are the people who are insured). Always do your research before deciding which one will fit to your financial protection plan, as every insurance policy have their own specific target goals as well, ALWAYS READ, REVIEW & UNDERSTAND THE POLICY, TERMS AND CONDITIONS.

Just a reminder to point out, insurance will always be an expense because you will pay for it. It is a liability for you but a significant asset for your loved ones if you pass away. It is always wise to plan for this kind of situations as you take matters strategically into your own hands, as you accept that life and death are always and will always be a constant part of the universe.

Medical Insurance

Just like what the name indicates, it is a coverage for our possible medical expenses in the future either for hospital admission, diagnostic examinations or surgeries. Whereas, life insurance renders financial assistance to the dependents who would left behind by their family provider due to death.

Based on statistical research, it denotes that 20% of people in the US get flu every year, then 25% of England UK’s population has hypertension, while 37.2% of the Philippine’s 20 years of age and above are obese as per 2018 data. These data signify that medical problems are prevalent in every corner of the world. That is why sick leaves has been implemented in all kinds of employment, due to the fact that almost all people will get sick in their lifetime.

Even though the data can be overwhelming and scary, there is no reason for you to be afraid of it and definitely not a reason for you to not prepare for the possibility of having diseases or illnesses. That is why medical coverages were established, this is to assist us with unexpected health crises that can arise in the future.

Just like with life insurance, we still need to study the company we want to subscribe into and most importantly ALWAYS READ, REVIEW & UNDERSTAND THE POLICY, TERMS AND CONDITIONS! do your due diligence to know what are you signing and going into, as there are different medical coverages in each country, and each person has different medical needs as well. For instance, if you have a child who has leukaemia and is expected to always be admitted in the hospital for blood transfusion, is it not better to get medical coverage for admissions rather than for outpatient needs? because some medical insurance only covers outpatient expenses and not hospital admissions, or vice versa, or some can cover both.

In addition, investing into direct hospital stocks is another way. Some hospitals offer their own shares to the public as minority stake holders. The perks of investing with them are the discounts when utilizing the hospital’s services like x-rays, blood examinations, OPD check up and hospitalization. Nonetheless, investing with direct hospital stocks have various risk just like investing in the stock market, this is why it is wise to do your own research about the hospital you want to invest in. On how they are performing as a company, their finances, their management, their market and their competitive advantage. The more you know about it, the better, because this mitigates the risk of having a poor investment decision and a permanent capital loss.

It is also advisable to invest in your health as simple as proper nutrition and exercise, as like the slogan says “Prevention is way better than cure”.

I know I might have a bit strayed away from finance here, but the reason you are doing all of this is for security and stability by controlling what you can control, so why not control your healthy habits by doing what everyone knows is right. The only problem here is that, as simple as it sounds, only a few people follow it, just like in spending, saving and investing our money. It will always be our behaviour that will consistently dictate our own future. By managing both our finances and health, it will tremendously decrease the chance of us acquiring diseases and illnesses, and in turn will also decrease the chances of us spending an amount of our money for medical expenses.

For the persons who have free healthcare in their country, just like in the United Kingdom, you are blessed to have this kind of support from the government. Nevertheless, having free healthcare is not a reason for you to be complacent and certainly not a reason to not save money for possible emergencies in your life. Always save for yourself and your family’s protection.

To sum it up

It is sensible and prudent to always make a plan to secure our safety.

Finding comfortability, stability and peace is always what we look for when we inquire for a home to live in, including the community where it is situated, and same goes with finding a job. That is also must be our reason for us to never neglect into looking for strategies on how to boost our emergency fund, rainy day fund and acquiring an insurance/medical policies.

We always need to have our own Avengers Initiative to protect us when alien forces like Thanos comes to disrupt our life. It is never to late to start and implement a financial plan, I’ll quote what Benjamin Franklin have said about planning,

“If you fail to plan, you are planning to fail.”  

BENJAMIN FRANKLIN

Knowledge is my Sword and Patience is my Shield,

Evan Louise Madriñan /elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.