How to Save For Family Emergencies & Build Your Family Emergency Fund

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A mother and son save money together

Emergencies are one of the inevitable things of life. They tend to come when you least expect them, and they’re almost always more expensive than you’re anticipating. But that doesn’t mean you can’t be prepared financially for your next family emergency. Here are a few pointers and best practices to help you start saving for your family emergency fund.

What Is a Family Emergency Fund?

A family emergency fund is money that’s separate from your regular savings. It’s specifically set aside to help you and your family sustain life and get back on your feet after an emergency. Essentially, it’s a safety net of funds to pay for expenses that arise from emergencies and to cover everyday costs in the aftermath of an emergency.

Importance of Having a Family Emergency Fund

In the wake of a family emergency, you might have to pay for repairs to your car or home. You might have unexpected medical expenses. You may even miss work or experience a loss of income. The nature of the emergency will determine your exact expenses, but the unfortunate reality of emergencies is that the rest of the world doesn’t wait for you to recover.

A family emergency fund can help you keep current with your bills and avoid taking on too much debt. In fact, according to the Consumer Financial Protection Bureau, families who have less savings set aside for emergencies tend to struggle to recover financially following an unexpected event. They may have to rely on loans or draw from other accounts to cover costs, which can set them back for a long time.

How Much Should You Save In Your Family Emergency Fund?

The size of your emergency fund will depend on several factors, including your income, family and expenses, but most experts recommend saving three to six months’ worth of expenses.

Saving that much all at once is a big ask for any family, but remember that an emergency fund is a fluid account. You’ll draw and replenish your emergency cash reserves on an ongoing basis. Start by saving for emergencies a little at a time, with the eventual goal of having a full three to six months’ worth of savings. You can even start with a smaller goal of $500 or $1,000 and increase that goal over time.

How To Save A Family Emergency Fund

Planning is one thing, but actually saving for emergencies is another. Put your emergency savings plan into action by using the following ideas to budget your income and prioritize your savings plan.

  • Make A Budget: Give your family emergency fund a strong foundation by making and living by a budget. Plan out your expected monthly expenses and include a category for emergency savings. Putting away a little money every month will help you get in the habit of saving so that you can build your emergency fund quickly.
  • Track & Cut Your Spending: Every good budget requires some amount of upkeep over time. Check your budget often to make sure that you’re spending within your means and saving for emergencies. If you find that you’re having trouble allotting money to your emergency fund every month, track and cut your spending where necessary.
  • Prioritize Your Money Saving Goals: Rather than waiting until all your bills are paid and your money spent, set aside emergency savings at the beginning of every month. Prioritizing your emergency fund will force you to trim unnecessary spending in your monthly budget.
  • Adjust Your Savings Habits: Consider stashing your emergency fund savings in a dedicated account, away from your regular savings and/or checking account. You may even decide to automatically transfer a portion of every paycheck to your emergency fund. Doing so will help you earn extra interest on your money and ensure that your emergency fund remains off-limits until it’s actually needed.
  • Create Ways To Earn Extra Cash: Building up savings to satisfy three to six months of expenses is a tall task. If you’re struggling to build your family emergency fund, consider finding extra ways to earn cash until you’ve built up sufficient cash reserves. Consider doing something as a family to earn extra money, like having a garage sale. Finding extra ways to save now is always easier than scrambling to save with the added stress of a family emergency. 

When Should You Use It?

What defines a family emergency is different for everyone. But if you set clear guidelines now, you can avoid the temptation and justification to use family emergency funds to pay for non-emergency events, including vacations, weddings, and other family activities.

  • Death In The Family: A death in the family can disrupt your everyday life, including your ability to work. On top of potentially losing income, the costs associated with the funeral and burial of a loved one can be a shock to any family’s finances. Don’t hesitate to use family emergency funds to supplement income and pay for expenses.
  • Job Loss: Losing a job is another reason to use family emergency funds. Your funds can replace your income and help your family pay bills and maintain quality of life until you’re able to find work. 
  • Medical Emergencies: Medical emergencies can be extremely expensive. Even if your insurance helps cover some of the costs associated with a medical emergency, you may still be responsible for a portion of the bills. That’s on top of the toll a medical emergency may take on your ability to work and earn an income.
  • Home & Vehicle Repairs: Transportation and shelter are among the necessities of life. They also enable you to bring in more money for your family. Just make sure that you clearly define needs versus wants when it comes to home and vehicle repairs. Getting back on the road or repairing plumbing in your home is obviously different than using funds to purchase a car or home that you can’t afford.

Can Insurance Help Protect You In an Emergency?

Depending on your particular family emergency and insurance plan, your insurance company may step in to help cover expenses. In fact, finding the right insurance for your family can be an important part of saving for emergencies. But that doesn’t mean you should save with the assumption that insurance will cover everything.

Oftentimes, insurance won’t kick in to cover a family emergency. Even when it does, you’ll be responsible for a sometimes-sizable deductible or co-payment. As a general rule, find the right mix of insurance coverage for your family, but build your family emergency fund with the expectation that insurance may not cover everything.

Where Should You Keep Your Family Emergency Fund?

Your family emergency funds need to be accessible at a moment’s notice. At the same time, if you’re lucky, your funds may sit in your account for an extended amount of time. You might as well be earning interest on your emergency savings.

Find an account that’s separate from your ordinary savings that will give you the best of both worlds — access and interest. An interest-earning savings or money market account at your financial institution is a great place to start. Just make sure you can withdraw funds without incurring fees or penalties and you won’t be tempted to use it for non-emergencies.

Bottom Line

Every family should have an emergency savings fund. Sooner or later (hopefully later) emergencies happen. Those families that are prepared with the right savings plan and emergency cash reserves can avoid the financial struggles that can sometimes follow emergencies. Use this article as a guide to start your own family emergency plan. When the unexpected eventually happens, your family and your finances will be in a better place for your planning and preparation.