Financial emergencies can strike at any time, causing a great deal of anxiety. It's one of the primary reasons 11 million Filipinos have unpaid debt.

A recent survey conducted by the Bangko Sentral ng Pilipinas in 2021 reveals Filipinos borrow money to cope with unforeseen expenses, which can affect long-term financial stability.

But what are financial emergencies?

Types of financial emergencies

Unexpected expenses or loss of income can cause the following financial emergencies. These bills and payments can quickly drain your savings, making it difficult to plan for the future. 

Medical emergency

Accidents, injuries, or sudden illnesses can send you to the emergency room. Depending on the medical attention you need, ER costs can start at ₱7,000 minimum. It's good if HMO and PhilHealth can cover the cost. But a serious medical emergency can incur significant out-of-pocket expenses, from specialty doctor fees to medications and rehabilitation.

Critical illness diagnosis

A critical illness can impair vital organs, affect bodily movement or cause physical changes. Heart disease, cancer, stroke, diabetes and pneumonia are some of the top critical illnesses in the Philippines. 

Treating these conditions can be financially burdensome, especially when you must take unpaid leave or quit your job. According to a study by the Philippine Institute for Development Studies, cancer treatment costs can range from ₱120,000 to over ₱1 million. The cost of chemotherapy can vary from ₱20,000 to more than ₱120,000 a session, depending on the cancer being treated.

Natural calamities

Natural disasters, such as typhoons, earthquakes, or floods, are sudden events that cause widespread damage to property and infrastructure. The country, which experiences an average of 20 typhoons yearly, saw 925,000 homes damaged or destroyed by Super Typhoon Odette in 2021. Recovering from natural disasters often involves high-priced repairs, temporary housing expenses, and replacing lost or damaged belongings that fall on you to finance.

Job loss

Job loss is one of the top reasons to save six months' expenses in your emergency fund. A financial buffer allows you to take your time finding the right job fit, rather than rushing into the first available position just to get income flowing again. 

Major car repairs

Sudden car repair bills can be excessive. A dead car battery alone will cost you ₱6,000 to replace. But with mechanical issues or car accidents, you're also looking at disruptions in your routines and income loss, primarily if you use it for business.

Sudden car repair bills can be excessive. A dead car battery alone will cost you ₱6,000 to replace. But with mechanical issues or car accidents, you're also looking at disruptions in your routines and income loss, primarily if you use it for business.

What Is not a financial emergency

When you experience these financial emergencies, the safety net you've set aside pays for necessities first. These are essential expenses such as food, electricity, gas, or medical bills that your health maintenance organization (HMO) or current insurance policy cannot cover. 

It's best to avoid using your emergency fund for discretionary expenses, which typically fall under the category of "wants." They include purchases that you can plan and save for in advance, such as:

• Taking a vacation
• Attending or planning a wedding
• Purchasing the latest smartphone
• Buying new furniture
• Paying for entertainment subscriptions
• Routine car maintenance

Using your emergency fund for non-essential expenses can leave you unprepared when you need it the most. You can set your guidelines on what qualifies as a financial emergency and what doesn't. But stay consistent to keep your financial priorities in order.

How to prepare for financial emergencies

Financial preparedness requires building a consistent savings habit, which involves creating and maintaining a budget. You can start by creating and sticking to a budget that helps you track your cash flow, recurring expenses, and overspending. Use these tips to keep your savings in good shape.

1. Establish a monthly savings plan

Start with small amounts if you have a limited ability to save. But aim for a specific number, gradually increasing your savings from three to six months' worth of living expenses.

2. Prioritize debt payments 

Paying off high-interest debt reduces financial strain and frees up funds for savings. Avoid using credit cards as your backup for financial emergencies as much as possible. Ignoring the impact of interest can result in larger payments down the line and may lead to more unexpected financial challenges.

3. Rebuild your emergency fund when you use it

Start saving again what you spent from your emergency fund to ensure you remain financially prepared. To make it easier, put the funds in a separate bank account that you can easily access and set up automatic transfers from your salary.

4. Obtain or review your health insurance

Insurance is not meant to be a substitute for an emergency fund, which should be ready and accessible at any given moment. Nevertheless, it serves as a safeguard, particularly against health-related financial emergencies.

Excellent health insurance can provide substantial monetary assistance for medical expenses arising from sudden illnesses or injuries for you and your loved ones. AIA All-In-One delivers up to ₱1 million* in financial protection for total or permanent disability. It also covers 10 critical illnesses, providing ₱1 million* cash benefit upon diagnosis.

AIA All-In-One also carries life insurance, guaranteeing a lump sum to your family in the event of your passing. If an accident is the cause of death, an additional ₱1 million* will go to your family. The policy provides the beneficiaries up to ₱2 million* if the fatality resulted in an accident due to natural calamities or riding public transportation.

5. Maximize your earning potential

One way to increase your savings is to explore additional sources of income. You can start by looking into negotiating a raise or promotion at your current job. Alternatively, consider maintaining a side gig or freelancing to supplement your income.

If you're set with your emergency fund and targeting another goal like your retirement income, invest in financial solutions to help grow your money further and come with financial protection. AIA Future Builder comes with life insurance and an investment component that can maximize your savings potential.         

Financial emergencies are a reality of life. But you can better equip yourself to handle them by proper planning and saving. Take action to secure your financial future before something terrible happens. 

Reach out to an AIA Life Planner who can guide you in organizing your finances before and after an emergency. 

Congratulations on taking that step toward financial resilience and peace of mind!

* Payment of benefits is subject to the terms, conditions, definitions, exclusions, and limitations found in the policy contract.