5 Ways to Best Prepare Your Family for a Financial Emergency

5 Ways to Best Prepare Your Family for a Financial Emergency

Financial Pilgrimage September 5, 2023

Most Americans don’t have enough money saved for a $400 financial emergency, let alone anything larger than that. Managing your finances can be stressful, but it doesn’t have to be. Planning for unexpected emergencies is key to managing your money and keeping stress levels low. The first step to developing that plan is deciding what types of emergencies you want to prepare for—and then taking steps to ensure you’re ready for them when they happen.

The typical rule of thumb is to save three-to-six months of your monthly expenses for emergencies. This likely looks different depending on your family situation. A couple with no kids will likely be able to spend much less than a family of five.

You’ll want to consider the most critical expenses in an emergency and the nice-to-haves that could be avoided or reduced in a crisis. Below are a few additional ideas to prepare your family for financial emergencies.

Create a Buffer

Most people spend every dollar without setting aside enough for emergencies. Planning for financial trials starts with ensuring your budget has some wiggle room. If you’re already at max spending, look for ways to save on things like insurance, groceries, cell phones, etc. You can also cancel services like your entertainment subscriptions to create a buffer if needed.

Use your buffer to start an emergency fund. Set a goal for how much you want in the fund and set aside some money each month to do it. Once you have your emergency fund in place, the next step is to keep it growing. You can set up an automatic transfer from your checking account into a high-yield savings or money market account every month to build up a healthy buffer.

Your buffer size depends on your income, essential bills, and how long you can live without one income if you are in a two-income home. Some experts suggest saving as much as 20% of your total income to account for major financial emergencies. Saving can take time, but the more you save, the better. If you need to go on social security or social security disability at some point, there are benefits for family members that you can also file for. This added income can help you create a buffer, especially if you still have children at home.

Balance Your Books

Balancing your books is essential to managing your financial situation, particularly if you’re living paycheck to paycheck. It’s important for you to keep track of how much money is coming in and where it’s going out so that you can spot any problems before they become serious.

If you’ve lost track of your finances, take some time right now to review all the accounts in which you have cash savings or investments, such as checking accounts, savings accounts, company stocks, and retirement funds. Write down each account and who holds those assets on behalf of yourself or others. You may also want to keep track of household assets such as cars or real estate property—this information can help determine the amount at risk should something unexpected like losing a job.

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