All seafarers are money spenders. We come on-board and stay their for 2 months or more, and when we sign off we have enough money to spend.
But the question is how do we spend our money?
Some of us has enough financial literacy and knows how to properly invest their money. Most of us doesn’t have any idea at all and spend it to whatever comes in their mind first.
When I was a kid, my grandmother use to show me the “Envelope System” of managing money. In this process you simply count how many priority bills you will pay for the next 3 to 6 months.
If you have 10 priority bills, then you have to make 10 envelopes and name it accordingly. Then you start separating your money to those envelopes and hide them for safe keeping until you need to pay that particular bill.
It works for a lot of reason:
- You force yourself to save to pay for that particular bill
- It separates your daily money to your saved money that you will use
- You distribute your money correctly and not missing out payable.
But the most important RULE that my grandmother told me is that you save 20% of whatever is left, after deducting your payment for the bills. this is the money you will use in case of emergency.
I never thought it that she was already educating me about emergency fund. I later realized about it after attending seminars on financial planning.
What you need to know about an Emergency Fund
Emergency fund is the money you set aside for emergency expenses. It sounds simple but very few people apply it to their financial planning.
We tend to go the other way when it comes to managing our money, especially debt. People usually want to borrow money rather that have an emergency fund.
Borrowing money is not bad, it becomes bad when you can no longer manage your debt which may result to bankruptcy.
But if you have an emergency fund or enough savings, you can still survive during your financial turmoil. Remember that emergencies can put you in debt or even worse.
Remember that a seafarers job is not a secure job. It is a hazardous job and we tend to forget the fact that an early stage we need to back up ourselves with an emergency fund.
Emergency fund can provide you with a number of ways to be happy:
- If your job security is in question and you have set aside 6 mos of your salary as an emergency fund, you will not be worried to stay for 3 to 5 mos which is enough to find a new job.
- Your wife is about to have a baby and you didn’t expect it to be that early, but you need not worry because you have money for this kind of emergency.
- Your car got broke and you try to fix it but when you estimate your expenses, it was higher than your usual budget. Good thing you have an emergency fund to back it up and you are able to solve your problem without using your credit card.
- It was the worst season of the year and your place was hit by a severe typhoon or disaster. Having an emergency fund will help you start again and repair whatever that needs to be fixed.
- You have a very sick person in the family that you really love and take care of and suddenly they need to be admitted in the hospital for treatment. Having an emergency fund can cover your expenses and not lead to unwanted debts.
You see, their are no bad side on emergency fund as long as you handle it properly. You must know how to make it grow and not use it to buy stuff that is not a necessity
Learn to build the foundation of your empire
There is a wrong idea that some people consider Credit Cards as an emergency fund. It is A BIG MISTAKE.
Emergency funds are supposed to keep you out of debt, not put you in debt and pay interest. Emergency fund are cash reserves that will help you solve your financial problem.
Remember to handle your emergency fund properly. Smart people keep it safe in the bank and set aside a certain percentage of their monthly salary to grow their fund.
Wise people set aside the same percentage of their monthly salary as the smart people. The only difference is that they save they emergency fund in high yielding accounts and earn good amount of interest. They also let their emergency fund earn money for them.
Just remember to be extra careful where to put your emergency fund. It must be:
- Accessible to you or one more designated person in case of emergency.
- Earn a decent amount of interest and in a safe savings account
- Must total to at least 3 to 6 mos of your monthly salary.
Your neighbor knows how to grow their wealth
When building your emergency fund you must remember the word DISCIPLINE and CONSISTENCY.
Building an emergency fund is like a snowball effect. You start from a small amount until to increase it as much as possible and as soon as possible.
You can start by saving 5,000php a month. Open a savings account that is a passbook only account. That way you will not have an easy access to your account. It forces you to be lazy to line up in the bank just to withdraw money.
If you are not disciplined in handling your savings, I suggest that you open a savings account across town. A little farther than your town. So you will have a good chance of not withdrawing cash from your emergency fund all the time.
The key is to deposit money to your savings account a monthly amount of 5,000php and increase the amount by up to 50% every 3 mos.
That is why you need to have Discipline, by not withdrawing money from your savings account and treat it as an Emergency Fund; and Consistency in depositing the same amount of money and even more in order to grow your savings.
Giant leaps comes from small steps. You need to start as early as you can and continue it until you retire. When saving money becomes a habit, it becomes second nature and you start to consider saving money first before buying stuff.
The amount I put here may not apply to other people’s salary. If you want to know how much you want to save, you can take 20% out of the money you have after paying your monthly household bills. Consider that 20% as your monthly savings for your emergency fund.
When it comes to your financial security, everything matters. All the decision and actions that you make today will make a big difference in your life in the future. Learn to start now and reap the benefits soon.