Introduction
Though parenting comes with its fair share of joy, it also has some expected challenges and expenses. It could be unexpected events, from minor things like damaged toys to more serious ones like broken bones.
However, the good news is that you can take measures for your family to get through these challenging moments — by setting up an emergency fund.
Emergency funds are just insurance policies – funds kept aside specifically for the day when unexpected expenses go beyond what you have planned in your monthly budget.
Need to know how to get started?
Play & Prosper’s got you covered as always. This article will tackle the sum needed to set aside for family contingency funds, its relevance, and how it can be done even with low-income earners.
Why is an Emergency Fund Important for Families?
Imagine this: Your child has developed a cold in the middle of the night, and you must take them to the hospital. You don’t want to have to think about money when this happens.
An emergency account provides assurance for times like these because it covers unexpected medical bills, vehicle breakdowns or even if your fridge goes off!
Below are detailed explanations about the significance of having an emergency fund for a family:
● Medical expenses: You can still be in a bad financial position with good health insurance because of deductibles, co-pays and other medical expenses without notice. In such a case, having an emergency fund will help cover such debts and keep you from borrowing. In addition, consider opening a Health Savings Account (HSA).
Here are some of the best HSA you can find online:
➔ Lively
➔ HSA Bank
● Job loss: A sudden job loss has the power to throw your entire budget out of line. Money from an emergency fund can ease this burden for as long as it takes you to find another job.
● Home repairs: Truly, home is paradise, but sometimes it crumbles. You may need an emergency fund to pay for immediate repairs on your home’s roof, furnace or plumbing system.
● Childcare: Moreover, there are instances when your regular babysitter might become terribly ill and fail to make it, or school could unexpectedly close off without any warning; in that case, the babysitting bill would be met by an emergency fund.
Related Article: Planning for Unexpected Health Expenses in Children
How Much Should You Save?
Emergency savings should be about 3-6 months of the cost of living. Yet this figure may seem unrealistic for many families.
Here’s some ways you can try to achieve that:
● Start with small goals: At first, it may not be possible to meet the three-to-six-month goal when looking at one thousand dollars as a large amount. You can start by setting an easier mark, such as five hundred dollars ($500) or one hundred dollars ($ 100$)!
● Examine your own life: How much money you should save for such surprises depends on your peculiar family situation. If only one person is responsible for the welfare of his family or they have huge debts, saving around half a year’s costs will also make sense. For others who are sitting on large amounts of cash and do not have employment issues, three months’ expenses could be adequate.”
● Be mindful of the dependents: A bigger household will require more savings. Add up your entire bill, including extra eating out with children and childcare expenses per month. Also, consider what will happen if they need medical attention before deciding how much money to keep aside each month.
Building Your Emergency Fund
While we yearn to save money, nobody ever said saving is easy. Here are some useful tips on building your family emergency fund:
● Save automatically: Think about getting your bank to take some of the money from your checking account to savings every time you get paid. Over time, little amounts accumulate and begin meaning something.
● Know what you’re spending on: Reducing expenses always begins with knowing how much you spend monthly. Budget apps or spreadsheets are used to track income and expenditure. You might be surprised at the things you can cut back on when you see them laid out before you.
● Eliminate needless spending: Reflect profoundly on your spending. Do you have any monthly subscriptions you could do without? Are there days when you can take lunch to work? Every little helps towards your emergency fund.
● Throw out the things that are not utilized: Look around your house and remove any unwanted clothes, electronics and furniture, sell them online or lay them up in commission stores. Take the money and put it in your emergency account.
Useful Resource: NerdWallet’s Monthly Budget Calculator.
Where to Keep Your Emergency Fund
Here are a few factors to consider when deciding where to put your emergency money:
● Liquidity: This is the ability to convert an asset into cash without substantial loss of value. A high-yield savings account has better bank failure protection by virtue of the higher interest rates and ease of withdrawal compared to regular savings accounts.
● Security: Choose an FDIC-insured account for your emergency fund so your money will be safe even if your bank goes under.
Looking for where to keep your emergency funds? Here are six savings accounts that can help you with your financial goals:
➔ EverBank Performance℠ Savings
➔ Bread Savings™ High-Yield Savings Account
➔ Bask Interest Savings Account
➔ Synchrony Bank High Yield Savings
Beyond the Emergency Fund
One important step in attaining financial security for your loved ones is by setting up an emergency fund. Having achieved your goal of having an emergency fund, there are some subsequent steps to think about:
● Retirement savings plan: Start saving for your old age as soon as possible. Numerous employers offer retirement plans which come with employer contributions.
Best IRA Accounts:
➔ J.P. Morgan Self-Directed Investing
➔ Interactive Brokers IBKR Lite
Useful Resource: NerdWallet’s Retirement Calculator, NerdWallet’s 401(k) Retirement Calculator, and NerdWallet’s 401(k) Early Withdrawal Calculator.
● College Savings Plan: Different types of US Treasury bonds (529s) are available for anyone who wants their children to go to college, and they can be established with tax breaks so that they can become a source of future savings in college fees.
Related Article: Saving for Your Child’s Education: 529 Plans Explained
Bottom Line
Start small and use these methods to create a financial safety net— this will help you feel less anxious when confronting life’s unpredictable events. It is also essential as it saves money that is usually borrowed during emergencies.