What’s the difference between your Safety Fund and Protection Fund?
I am often asked this question whenever I sit down with someone for Financial Planning. (Want to have a free Financial Planning session? Contact me here)
So, lets’ define these terms first.
Some people call this the “Emergency Fund.”
I’d rather call it the “Safety Fund” or the “Peace-of-Mind account.”
The safety fund is the fund that contains at least three to six months of your monthly expenses.
Tracking your monthly expenses will give you an average amount that you can multiply to three, four, five, or six so that you can arrive at your ideal Safety Fund amount.
Place this fund somewhere that you can easily access.
For my case, the best option is an ATM savings account. (Just make sure that you have the discipline to spend this fund only on emergencies!)
This is how I define this fund: The protection fund is the fund that replaces your income in case you lose your ability to earn that income.
What are these instances that make you lose the ability to earn that income? Death and Disability.
The protection fund will act as the replacement income when the unfortunate happens.
When I meet with potential clients, I compute their economic value to their family.
This value greatly depends on who you support and how much you give as support.
If you want to know how to compute the adequate amount of protection that you and your family need, contact me here.
Which should I establish first?
I’ve been asked this question so many times.
“Argel, should I save up for my safety fund first or should I have a protection fund first?”
This mainly depends on the financial situation of the client.
There are instances that the client can simultaneously save up for the safety fund and the protection fund.
I find out about this by analyzing the client’s cash flow.
There are also instances that I advise getting term insurance first while saving up for the safety fund just to make sure the dependents are protected.
It really depends on the situation.
That’s why I always want to meet and know my clients first before I propose any solutions or investments.
If you need guidance, set an appointment with me and let’s talk.
Looking forward to meeting you,
Argel Tiburcio, CIS, RFP Graduate Member
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