Family Financial Planning: Building an Emergency Fund
Unexpected financial emergencies are bound to happen and it’s important to have money saved up for these unfortunate expenses. Read along as we provide tips on how to grow an emergency fund and why they matter.
What Is an Emergency Fund?
An emergency fund is money set aside, specifically for unexpected expenses. For example, car repairs, home repairs, medical bills, and loss of income could all be reasons you may need to use your emergency fund.
Why Is It Important to Have an Emergency Fund?
If you have an unexpected expense without an emergency fund, you will need to take money out from your savings account. This could set you back and even put you in debt, causing more future difficulties.
On the other hand, having an emergency fund allows you to stay on top of your finances and avoid any debt you might’ve had to take on from the emergency.
Why Emergency Funds Are Essential with Kids
There are numerous reasons why it could be smart to have an emergency fund built before you have kids.
- Your leave might be unpaid: If your parental leave is unpaid, you will most likely only be a one income family when you start your leave. Having an emergency fund will help with any unplanned expenses you might have during your leave. Read more about planning for parental leave.
- You might have a lot of healthcare bills: Giving birth doesn’t always go as planned, and you could experience a lot of healthcare bills. These might be due to complications during the birth or complications with the baby after the birth. Setting aside money for these scenarios can be extremely helpful. Baby’s typically have a few doctors appointments early in their life. With that being said, you might see an increase in bills. It’s crucial to be financially prepared, as you never know when you’ll be taking an unplanned trip to the doctor.
- Your expenses might increase: Having a baby typically brings more expenses. You will have to purchase items like food, clothes, and diapers. If you face a sudden income loss, finding the funds for these items could become very difficult.
How Much Should You Have in Your Fund?
Every family is different and there is no perfect amount to have in your emergency fund. Consider determining the most common type of unexpected expenses you’ve had to know how much money to set aside. You can get an idea of how much you typically spend on these expenses and place in a few more possible expenses.
How to Build an Emergency Fund
It is a lot easier to build your savings when you have a plan and when you stick to it. Consider doing the following to build your emergency fund:
- Set a goal: Having a specific goal will help you know where to start and keep you motivated along the way.
- Make consistent contributions: Setting up automatic recurring transfers to your emergency fund will be the easiest way to build it and reach your goal. Consider deciding on a specific amount to transfer each month. Maybe sometimes you can afford to allocate more than usual to your emergency fund. Either way, you’ll be able to watch your savings grow quicker if you decide to put money in it each month.
- Regularly monitor your progress: Take time each month to check in on your emergency fund. Place funds in it regularly and adjust if needed. Regularly monitoring your progress will help you stay on track and motivate you.
- Adjust the dates of your bills: Track your cash flow to determine when it’s a good time to contribute to your emergency fund. If you find it financially smart, change your billing date to balance your money.
- Take advantage of one-time opportunities to save: There might be times during the year where you get an influx of money. For example, you might get birthday money, a tax refund, or holiday money. Instead of spending this money on things you want, consider putting it in your emergency fund. Your future self will thank you.