I wrote extensively about emergency funds in the past. If you want to read my definitive article on it, click here.

I believe that having an emergency fund is essential, even if you have life insurance that covers every member of your family. Insurance policies don’t cover every problem under the sun, and in most cases they only pay a fraction of what you need to spend.

Here’s an example: one of my dependents had a major operation recently, and though she had insurance coverage, I still had to pay around P30,000 for part of the operation, the medicines, and the lab tests – all of it came from my emergency fund. Without it, I would’ve had to resort to debt or to take money from my retirement savings.

Emergency funds aren’t just useful for medical emergencies. They can be very useful if you suddenly need repairs or maintenance in your home or car, were laid off from your job, need to get a cut in your salary, and even for calamities such as Ondoy. Having an emergency fund will protect you from debt, especially since you don’t have to pay any interest rates and fees.

My emergency fund the number one reason why I’ve stayed debt free and feel secure about my finances. As a bonus, I am able to work on projects and jobs that I am passionate about because I know that I can still support my family even without a paycheck for a few months.

Re: emergency fund vs. retirement, that depends on your situation. If you have dependents and only one income source, then it makes sense to have an emergency fund worth 3 months of your living expenses, maybe even more, before you save up for your long term goals. Remember that these numbers are just suggestions, not hard rules. It depends a lot on your comfort level and what you can afford. Consider these factors when you set your target goal for your emergency fund. Personally, I prefer to have a 6-month to 1-year emergency fund because I have many dependents.

Do you know how long it will take for you to finish saving up for your emergency fund? If you can finish saving up for it within a year, then prioritize that first, but at the same time you have to plan your retirement savings. You don’t necessarily have to chip in yet, but budget for it appropriately and compute how much you’ll need for retirement.

I hope I was able to help. Let me know if you have further questions.

I hope you can shed some light on this. I’ve been contemplating on whether to finish my 3 months EF before I put money into the program that my financial planner made.

I have some VUL policies with Prulife that would serve as additional retirement funds which started on 2006 (policy 1) and the other one (policy 2) was started middle of this year.