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The difference between emergency & investment fund: how to deal with it?

mart.jo123 · 16 · 3632

mart.jo123

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Hi guys,

I'm a newbie here in PMT. It's nice to be a part of this great forum. :)

You can look at my backstory/introduce-yourself-post here: http://www.pinoymoneytalk.com/forum/index.php?topic=47556.msg503734#new

Now my question is: what is the difference between these two terms: having an emergency fund an having an investment fund?

Of course I know what it literally means, but in terms of playing around with it or being wise about it, I am totally lost.

I at least save 4k-6k a month and I read in an article that "once the emergency fund reaches a certain amount, put it on the investment fund).

How should I go about this if I plan to save up WISELY for a visit to Japan within 1.5 years with a budget of 50000 PHP? (without of course, doing the obvious which is plainly just putting your money inside the bank :/ )


Thanks in advance :) :)
« Last Edit: Aug 25, 2014, 04:34 PM by mart.jo123 »


bauer

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^ Obviously, today's youth do not have the patience to wait for long term rewards of their labor.  Many wanted instant gratification.  This is a nature of human behavior that is endemic globally among all culture.

My advice --- First, set up an emergency fund good for at least 6 months of your gross salaries. Complete it first.

Second, set up an investment fund the amount or percentage is commensurate with your age.  If you are 20 years old, at least 20% of your gross salary must be set aside for investment.  Do not dip on this fund no matter what happen.  Do it for the next 10 years.  After 10 years, set aside 30% of your gross salary for the rest of the years until you retire at the age of 65.

Third, set up a leisure or recreation fund or happy fund.  this maybe done simultaneously with your other fund/s as your income may allow.  Tip, your Japan trip of 50,000 is not sufficient.  It is an expensive place to tour.


DonT

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I would do something similar.

Maximize savings and invest into a low risk investment fund..like Money Market Fund. Now calculate how much do you really need to survive for 6 months. Its actually a lower figure compared to 6 month salary.

Once you get this figure....you can now start investing in more 'riskier'/rewarding investment instruments..

I would'nt put a % on how much i should save. Beleive it or not, i still do it the traditional way..I calculate how much i need to reach the next pay day..then save everything else left.

But remember...invest not only in money. You should also invest on yourself. If you have to spend money to upgrade your knowldge and skills...you should. That has a far higher ROI compared to any financial instrument.


ikaela

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An emergency fund is money you or a trusted person must be able to get INSTANTLY in case of emergencies. Ex. you or an uninsured loved one needs to be hospitalized and the hospital won't admit you unless you have a deposit (even if it's illegal) -- someone should be able to run to an ATM machine and withdraw the money PRONTO. Dapat no need for withdrawal slips, signatories, waiting periods, or forms to fill out -- emergency nga eh.

Now, assess your life and see if you are prone to emergencies, accidents, unexpected occurrences, and etc. For some people who don't have that many risks in their lives, most emergencies (if they do come) typically cost around only about 1-2 months of their expenses. So it is advised that the other months' worth of your emergency fund be placed in some type of investment, because sayang naman kung naka-tengga lang that much money in a savings account. The investment should also be easily withdrawable or near-liquid, like money markets or fixed income funds.

As for your trip to Japan: 1.5 years is a short time to save, but who am I to talk -- I trade my own travel funds in the stock market. On my own trips, I placed everything in equity funds. I admit that before, it was only sheer dumb luck that I made money as it was a bull market; be careful because you may not be as lucky.
« Last Edit: Aug 27, 2014, 10:31 PM by ikaela »


mart.jo123

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^ Obviously, today's youth do not have the patience to wait for long term rewards of their labor.  Many wanted instant gratification.  This is a nature of human behavior that is endemic globally among all culture.

My advice --- First, set up an emergency fund good for at least 6 months of your gross salaries. Complete it first.

Second, set up an investment fund the amount or percentage is commensurate with your age.  If you are 20 years old, at least 20% of your gross salary must be set aside for investment.  Do not dip on this fund no matter what happen.  Do it for the next 10 years.  After 10 years, set aside 30% of your gross salary for the rest of the years until you retire at the age of 65.

Third, set up a leisure or recreation fund or happy fund.  this maybe done simultaneously with your other fund/s as your income may allow.  Tip, your Japan trip of 50,000 is not sufficient.  It is an expensive place to tour.

Thanks for the great tip. I was enlightened.

Although I have to say that I am a very patient person. I can deal with long term investments and 1.5 years of a trip to Japan was just a ball park figure.

Just to clarify though: 6 x gross salary = what I should save up for am I correct?

Second, regarding the investment fund and leisure, is this another separate saving fund? Will I not pull it out from the initial emergency fund that is a six digit figure nevertheless?

If these two are separate, I would humbly like to ask if I could talk to you via PM regarding my financial situation in terms of my current income (both gross and net).

Appreciate it. :)


mart.jo123

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An emergency fund is money you or a trusted person must be able to get INSTANTLY in case of emergencies. Ex. you or an uninsured loved one needs to be hospitalized and the hospital won't admit you unless you have a deposit (even if it's illegal) -- someone should be able to run to an ATM machine and withdraw the money PRONTO. Dapat no need for withdrawal slips, signatories, waiting periods, or forms to fill out -- emergency nga eh.

Now, assess your life and see if you are prone to emergencies, accidents, unexpected occurrences, and etc. For some people who don't have that many risks in their lives, most emergencies (if they do come) typically cost around only about 1-2 months of their expenses. So it is advised that the other months' worth of your emergency fund be placed in some type of investment, because sayang naman kung naka-tengga lang that much money in a savings account. The investment should also be easily withdrawable or near-liquid, like money markets or fixed income funds.

As for your trip to Japan: 1.5 years is a short time to save, but who am I to talk -- I trade my own travel funds in the stock market. On my own trip to Japan, I placed everything in equity funds. I admit that before, it was only sheer dumb luck that I made money as it was a bull market; be careful because you may not be as lucky.

Hi Ikaela,

Thanks again for the reply. Right now I'm guessing that emergencies within the family are under control, by God's grace. So I think the emergency fund, not saying that it will not be necessary, is of a medium priority.

I really want to invest early and get my portfolio shining in the long run. Not just for leisure, but also so I could provide a boost to at least 5 years of Ateneo HS tuition fees (6 digits, won't say the actual figure na) fund.

Now don't get me wrong, I know that stocks/bonds/and all that jazz are not going to be sufficient. I just really want to have a good system in saving. Some people my age are not very keen about how hard it is if we were to put ourselves in the shoes of our parents long ago. Probably, our grandparents wouldn't even give a peso if they found out that their child wasn't working.

I am taking advantage of my blessings wisely and that is why I want to find sources of income that are aside from just putting all my money in the measely ATM and just letting it stay right there. :)


mart.jo123

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I would do something similar.

Maximize savings and invest into a low risk investment fund..like Money Market Fund. Now calculate how much do you really need to survive for 6 months. Its actually a lower figure compared to 6 month salary.

Once you get this figure....you can now start investing in more 'riskier'/rewarding investment instruments..

I would'nt put a % on how much i should save. Beleive it or not, i still do it the traditional way..I calculate how much i need to reach the next pay day..then save everything else left.

But remember...invest not only in money. You should also invest on yourself. If you have to spend money to upgrade your knowldge and skills...you should. That has a far higher ROI compared to any financial instrument.

Great to hear from you again, DonT,

Perhaps the hard thing to do in my situation is actually budgeting. I am glad to be in a company that invests greatly on employee growth and even education in our field. The thing is though, I'd like to think the raises will be a long way to go. And if they do come, they will not be as splendid as I think.

I try to eat 5 meals a day, snacks that are healthy and filling. However, contradictory to this, I do smoke (which costs me 500 a month, sadly). I have a girlfriend that I love and I cannot put off some things with her (e.g birthday dinner/presents).

Easy to say, hard to do, I understand that. But if anything, even if it takes me 6 months, I want to pull out some money from my ATM and put it on investments. I don't want to be the guy who just lets his money sit in an ATM. :)

Thanks for the wake up call, and I would really appreciate any advice via PM regarding my financial situation and budgeting if ever.


mart.jo123

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I think I have it sorted out after reading this PMT post about budgeting. Hopefully I'm on the right track though:

Would you think that this would be a good monthly budget?

Fixed expenses (Food, Miscellaneous, etc.) = 8000
Emergency Fund = 3000 (not to be touched unless for health reasons)
Savings = 4000
Investment Fund = 5000 (not to be touched until it reaches 150000 PHP)


Investment goal will be attained 2 years, 6 months from now ideally.

Comments would be appreciated :)


bauer

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Fixed expenses (Food, Miscellaneous, etc.) = 8000
Emergency Fund = 3000 (not to be touched unless for health reasons)
Savings = 4000
 

Good start.


bauer

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Investment Fund = 5000 (not to be touched until it reaches 150000 PHP)[/b]
 

Maybe you refer to it as a leisure fund?

you do not put a limit (150,000) on an investment fund.  normally, it must grow as you ages.


mart.jo123

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Maybe you refer to it as a leisure fund?

you do not put a limit (150,000) on an investment fund.  normally, it must grow as you ages.

actually, I was referring to this as investments for stocks and all. I heard kasi na if you want to invest, you target first 6 months worth of your monthly gross income...or mali lang pagkakaintindi ko :/


ikaela

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In investing in funds/stocks, you can start with as little as 1-5k. You don't need 150k in one go. In your budget, you can already start socking away that 5k earmarked for investments in the fund or stock of your choice.


mart.jo123

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In investing in funds/stocks, you can start with as little as 1-5k. You don't need 150k in one go. In your budget, you can already start socking away that 5k earmarked for investments in the fund or stock of your choice.

You mean I can shell it out and simply put in 5k (or more) in the stock market already every month?


mackygoof

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in my opinion, it depends on your strategy


GoodSteward

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To keep it simple, as a general guide:
Emergency fund - equivalent to 6 months of your monthly income. Set aside, for emergency use, in case u get sick, got fired etc... Do not invest this. Keep it liquid.
Investment fund - money set aside for investment after you have your emergency fund in place.

You can tailor-fit the guide. Say accumulate emergency fund until it reaches 3 months of your monthly income. Then while accumulating to reach 6 months worth, you can start investing.

Study and learn different investment schemes while accumulating emergency funds. Its normal to get excited to something new like investment. But you dont want to go to a battle without any weapon.


 


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