If you have kids, you know that emergencies happen. You glance away for a split second and somehow your 2-year-old has managed to flush your keys down the toilet. While most of these little surprises are not the end of the world, some can be quite costly.
As a family, you will want to have enough money on hand to cover any unexpected costs that may arise. Whether it is related to an urgent medical need or a more long-term problem like a job loss or natural disaster.
We asked experts around the globe how much cash you should have stashed if a family emergency arises. Read on to discover whether you have enough cash to get through any curveballs that life throws your way.
3 to 6 Months of Savings
“Your ’emergency fund’ is essential to your financial plan, self-insuring for the ‘what ifs’ in your life. This money is ideally set aside in your high-yield savings account, increasing in value yet also readily available. Like traditional insurance, no one wants to use the money they set aside in their emergency fund,” said Alissa Krasner Maizes, a financial planner and founder of Amplify My Wealth.
“The recommended amount of an emergency fund is usually three to six months of expenses. But finances are personal; each person should consider the likelihood of a sudden change to their cash flow because of unemployment, illness, or disability, as well as what their family needs might be in the case of death or divorce.”
Maizes added, “When deciding how much is enough, you should consider how long it would take to find a new job, as well as the financial impact of debt, disability, and life insurance, as well as how your expenses may fluctuate due to an emergency.”
Common Family Emergencies
“Unemployment, illness, disability, death, and divorce are top of mind for families’ most financially impactful emergencies. Yet, there are other “what ifs” in the life of a family, such as unexpected childcare expenses, tutoring, mental health, healthcare, a broken tooth or bone, new tires, roof repair, and even meeting the deductible for insurance for your car, healthcare, or property,” according to Maizes, who is a licensed investment advisor representative and attorney.
She added, “When considering using your emergency money, it is essential only to use it for emergencies to ensure that it will be there when you need it. This money is not for a family vacation, a down payment on a car or home, or other things that are not necessities that constitute an emergency but are best suited as individual financial goals.”
Calculating the Costs
Emergencies can cost a few hundred dollars such as in the case of a needed car repair or tens of thousands of dollars. Planning for the most likely costs, such as enough money to cover your insurance deductibles is a good place to start.
“The more impactful potential emergency expenses are determined by correlating your everyday expenses with possible events and the ultimate impact they could have on your finances. Yet, the potentially less expensive emergencies are determined by specific costs for those ‘what ifs,'” Maizes said. “Although there is no one-size-fits-all cost for potential emergencies, the first step to determine your number is to create your monthly budget inclusive of your annual expenses divided by 12 to account for them as monthly expenses.”
Start Saving Now
“Whatever amount you determine is needed to fund your emergency fund, it is best to start now, no matter the amount set aside, rather than do nothing. I recommend automating the money set aside to fund your emergency fund,” Maizes said. “While three to six months of expenses are an excellent starting point, consider your likelihood of needing an emergency fund and your comfort with risk in the event of a financial emergency when determining your number. Concerning the relatively one-off emergencies, whether funded separately, as a buffer in your budget, or within an emergency fund, an ideal amount for a family of four is $4,000 -$6,000.”
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