Thursday, April 5, 2012

A Traveler's Emergency Fund

Personal finance books and blogs discuss the importance of having an emergency fund – your “rainy day fund”. It is an accessible reserve that will be used in case of an emergency. This fund can range from three to six month’s worth of expenses which will be your fall back fund in case you lose your job or lose income. There is no absolute standard in determining the amount; it all depends to each one’s needs. I’d like to share some insights about this, from a travelholic’s perspective. 

My piggy bank and my world map

The Benefits of Having An Emergency Fund

Additional Fund for visa purposes
The emergency fund will serve as an extra fund when you apply for a visa. Most visa applications will require you to submit your latest bank statement – if you will shoulder your vacation expenses.

For the Real Emergency
There is always this inherent risk when traveling. A bus accident, food poisoning, getting mugged and stabbed – travelers are not immune from the dangers of its destination. An EF can cushion the blow when the hospital bills come. Or you can get a travel insurance that covers this.

Allows Flexibility
The world goes on while you are having the time of your life. An unexpected death may need you to fly home immediately – and your return ticket may be the non-rebookable type. Or a volcano erupts and you need to take another flight home. Having extra funds allows you to purchase another ticket in extreme cases.

Til’ The Next Payday
After admiring all the pictures of your trip, you realize that your pockets are empty. Traveling will cost you something, no matter how cheap you travel. Unless you always travel for free and never do shopping, you’ll come home happy but a bit broke. Oh, and what if payday is still one week away? An EF can get you through this time - only if you've gone over your budget in your trip.

I've been putting 5 and 10 cents in this empty bottle since college

I recall the first time I booked a flight online. It was easy. So darn easy that I had no trouble booking the next, and next and the next. When I got a credit card, I promised myself to be a responsible CC user and I will pay all my bills in full and on time. So I had to pay for all those tickets in one sitting – even thought the trip is still months and months away! I had to dip to my emergency fund to pay those bills.

I realized that my newfound passion can easily eat up the emergency fund that I diligently set-up. Had to do some belt-tightening to replenish the fund again. I had to set-up some self-made rules if Traveling will remain in my life.

Define (Or Redefine) "Emergency"
            Do you need an urgent need to do some weekend getaway to keep you sane?
            Or perhaps there’s this really awesome deal of your dream destination in a groupon site?
            Or this Piso fare sale is the fairest of them all?

These scenarios can be justified as “emergencies”. We can be really good classifying these scenarios as "emergencies". Same concept with justifying the “want” as a “need”. Some would consider that traveling is a basic necessity to keep you sane. Have your own definition of an emergency. Stick with it.

Create your “Emergency Travel Fund”
You’ve probably heard about having an emergency fund worth three to six months of your expenses. This serves as your “backup” funds in case you lose your job. Applying the same principle, you can build your “emergency travel fund”. This is another fund aside from the monthly allocation for travel expenses. This will cover your impulse bookings on seat sales and those unplanned weekend getaways.

To book or not to book? Set your rules
Seat sales go on and on, one after the other. Checking the airline’s websites for seat sales can be quite addictive. With your credit card, you are prone to a booking spree – this is even more dangerous than a shopping spree in the mall. You’ll be so obsessed with entering all the necessary information because of the slow website, you may run out of seats, or your session will time out.

For me, I book local flights if a round trip ticket costs Php 2,000. For an International Flight, it should cost no more than Php 5,000. Now, now, of course there are exceptions for international flights which would cost ten times than usual. For those flights, better start budgeting rather than relying on an emergency  fund.

So if you playing with that thought of spending everything you have on a really expensive trip, whoops, wait. Don’t spend them all. Leave some behind.

1 comment:

  1. Having a emergency fund is really helpful financially.I seen that it has a lot of benefits and that is really cool for your article.Good job.


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