From packing antibiotic ointment for cleaning wounds to carrying compression bandages for following the RICE injury treatment method, chances are that you've created a first aid kit for physical emergencies. But have you prepared your family for financial ones as well?
Whether your car needs an expensive repair or the economy takes a turn for the worse, life is filled with the unexpected. However, not everyone's financially prepared for it, as only 41% of Americans can handle a $1,000 emergency. To keep your family free from any financial distress, having an emergency fund can help you be prepared for any kind of situation.
If you're not sure where to start, here's what you need to know to build your backup fund for your family.
Set a Target Amount
The general rule is to raise around three to six months' worth of earnings, but the right amount actually depends on your family's financial setup. Case in point: The Certified Financial Planner Board of Standards notes that single-earner families should at least have six months' worth of expenses saved. Meanwhile, double-earner families should aim for three months' worth of expenses saved. Understanding the target amount of your emergency fund is the first step towards building peace of mind with your family's financial security.
Focus on the Essentials
Being a new mother is one of the most exciting times in any person's life. But it's this thrill that can drive many moms to spend a little more than they should. For instance, PopSugar highlights that a common money mistake that new parents make is stocking up their baby's wardrobe when most of their clothes are hardly ever worn. On this note, it's best to take a good look at your budget and figure out what your essentials really are. In this way, you'll be able to set aside money for any emergency and ultimately, your family's financial future.
Automate Your Savings
If you think you might have trouble sticking to a tighter budget, you should consider having an automatic savings plan. Investopedia points out that an automatic savings plan will take out a specified portion of your paycheck, and then directly deposit it into your bank account periodically. Asking your employer or bank to automatically transfer your earnings to your emergency fund can make all the difference for your family's financial future. Not only can it help your emergency fund steadily grow, but it can also encourage you to be more mindful of your spending habits.
Know When to Use It
Having an emergency fund is definitely a step in the right direction, but knowing when to use it — and when not to — is an important factor, too. To this end, Marcus’ guide on when to use an emergency fund recommends asking yourself three key questions. First, ask: "Is this an unexpected expense or event?" Of course, while it may be helpful to open up this cash reserve for everyday matters, you should only use your emergency funds for expenses that aren't normally a part of your budget, like an urgent hospital visit or car repairs.
Another question you should ask is: "Is this expense necessary?" This means evaluating how significant an impact the situation will have on your life. Lastly, you can guide yourself by asking: "Is this something urgent that requires you to act immediately?" If the circumstances call for immediate financial assistance, then it's time to use the emergency fund. Knowing when to use your emergency fund is key for securing your family's safety in case something unfortunate happens.
We believe here at Sleeping Baby that we should find the best ways to care for our children. And as a mom, this sometimes means facing the hard truth that we'll encounter unexpected and unfortunate events in life. Whether it's heading to the emergency room or even fixing a broken heater in the middle of winter, it's always best to be financially prepared when we encounter these situations. All in all, building up an emergency fund is one of the best ways to keep your family safe and sound.
Alicia Ryan is a part-time freelance finance writer, and a full-time mom to twin girls. Having worked as a financial adviser, Alicia used to dream about days spent working in Wall Street. However, when she gave birth to her beautiful girls, she realized her true purpose in life. This didn't mean she had to put her passion aside, however, as she also discovered that she can use her financial background to help other moms secure their future. When she’s not writing, you can find her learning the latest dance trends with her girls.