With memories of the Great Depression, my grandmother kept a stash of money hidden under her mattress and a pantry full of canned goods. I have heard similar stories from countless other individuals when recalling their grandparents financial habits. An emergency fund is a modern version of this concept. It is money kept in a savings account for unexpected expenses. It helps avoid turning a minor or major inconvenience, whether an unanticipated doctor’s visit or losing your job, into a financial catastrophe!
More than most people, parents need an emergency fund. With more mouths to feed, you could quickly get into dire straights if you don’t have an emergency fund and lost your job. Even smaller emergencies like a visit to the dentist or a getting the car fixed could make you dip into debt if you don’t have a little extra saved. Your children and spouse might be depending on the emergency fund for housing, food, and other necessities.
Financial planning experts don’t agree on an exact amount to save in the fund, but most agree that there should be about six months worth of expenses for you and all your dependents. A starter emergency fund should have about $1000 tucked away. Start with $1000 and then steadily build up your savings. You can even start with $500 if that is too big a commitment.
According to a 2016 study by Fifth Third Bank, 47% of Americans often live paycheck to paycheck, making it difficult to save. Looking at all of your expenses and cut out ones that aren’t necessities, like snack food or television subscriptions. While it may feel restrictive to live without these comforts for a while, it will ultimately help you and your family in the long run! Other options include selling unnecessary household items or using your skills to get some extra income. Whether tutoring, music lessons, freelance web design, or yard help, there is a plethora of extra income sources you can take advantage of.
As the old adage says, “Make hay while the sun shines”—you need to start adding to your fund before an emergency strikes so you aren’t caught unprepared!