Someone’s savings can go towards any goal imaginable: a dream vacation, a large future purchase, or just having everyone’s Christmas gifts covered. Unlike a savings account, the purpose of an emergency fund is the same for everyone: to help with unforeseen events.
Building a financial safety net is easier said than done when just over half of Americans are able to cover a $1,000 unplanned expense. Today’s political climate and surging inflation only add to the uncertainty and difficulty in starting up an emergency fund – not to mention building one for a family.
If there’s anything we’ve learned from the pandemic, it’s that these precise struggles highlight the need for having an emergency fund in the first place — particularly for those with family to think of. Even if you’re an optimist born under a lucky star, think of it like this: best-case scenario, you never have to use that money. Read on to find out everything you need to know about setting up and building up a family emergency fund.
What’s a family emergency fund and why do I need one?
A family emergency fund does exactly what it says on the tin: it covers a household’s unexpected expenses. This separate savings account is dedicated to unplanned situations and is a fundamental part of most successful financial plans. Essentially, the money set aside can come in handy should you or your spouse lose your job, or help in covering sudden healthcare costs.
Unexpected and sudden events might include:
- Loss of income/Unemployment
- Urgent medical treatment
- Death or disability in the family
- Boosts in monthly loan installments
- Necessary home improvements
- Emergency car repairs
In the wake of the pandemic, more and more Americans see the importance of having an emergency fund. Some lost their job, some lost their home, and some dealt with health complications — and the road to rebuilding oneself after such hits is difficult. Using money from a fund dedicated to emergencies when dealing with the unexpected also reduces the need to use high-interest credit cards or take out loans to cover what’s needed. Basically, by tapping into your own savings, you eliminate further debt — it’s a safety cushion.
What qualifies as an emergency expense?
A family emergency ensures the well-being of the family members in the face of an unforeseen event. It focuses on essential needs and potential must-haves, usually revolving around loss of income or health events, rather than on setting an exact goal and saving up until you reached it (such as a family vacation).
Analyze your family’s monthly expenses and sort them into essential and discretionary. An essential expense might mean different things in different scenarios. For instance, if you’re expecting your first child, the jump from being a couple to having a baby to care for will make you reassess your essential expenses and shift your focus toward early childcare and school.
Even if you don’t have a spouse or children, a family emergency fund can come in handy as a way of providing financial aid to extended family members. For example, if you have aging parents, your emergency fund can aim to cover increasing medical expenses, assisted living costs, and even funeral expenses. Alternatively, a sibling might face an emergency of their own and require financial assistance. These days, emergency funds double as “worst-case-scenario” funds as some might even consider opening one to relocate in case of cultural unrest.
How large should my emergency fund be?
A quick Google search will tell you that the standard amount in an emergency fund should be somewhere between 3 to 9 months’ worth of expenses. First off, figure out how much your family spends each month on necessary living expenses – including food, housing (mortgage, rent), utilities, school costs, car payments and insurance or other transportation costs, student loan payments and other financial obligations.
Once you’ve identified your monthly essentials, you can put a plan in place to contribute part of your discretionary income to an emergency fund. And yes, putting aside nine months’ worth of household expenses is usually hard, not just this year. This requires serious effort and can be very straining on the average family’s budget, so starting with a more modest goal, like saving one month’s worth of expenses, can feel more manageable. Once you reach that goal, you’ll be able to reassess and adjust your contributions until you meet your overall goal. If you are paying off loans or credit cards at the same time, try to prioritize the high-interest debt first.
Building a solid emergency fund takes time, patience, and discipline from the entire family, so discuss a plan with them. Patience is crucial, and having a clear goal and buy-in from everyone makes the journey easier.
How long should I keep saving?
Short answer: however long it takes and makes you comfortable. In an ideal world, saving up for rainy days would be second nature, because life can throw curveballs when least expected — but that’s not always the case and it can be challenging to learn. After you reach your emergency fund goal, maintaining a steady balance becomes more about consistency rather than the amount set aside.
Understandably, many households with emergency funds set prior to the pandemic suddenly became unable to contribute as much or at all compared to pre-COVID times. In times like these, budgeting and prioritization become even more important. For example, the average American household spends about $300 on eating out per month. Small perks such as takeout or daily coffee runs add up and can have an impact on your savings in the long run.
In the end, the best practice for maintaining an emergency fund is a mix of actively cutting specific costs, reigning in a few small luxuries, and allotting whatever possible regularly toward your goal. This includes smaller sums like unexpected refunds or extra change, to larger amounts like bonuses or raises from work.
Expert Questions
If you’re not sure where to start or how to keep an emergency family fund going, we’ve rounded the best tips from top personal finance experts. Read on for quick tips, as well as an answer to the question that’s on everyone’s mind: How to handle the impact of inflation on the family emergency fund?
![]() Paul Camp Professor and Chair Department of Finance Metropolitan State University of Denver |
What are some quick tips on saving up for a family emergency fund? As with any savings goal, this should be part of your ordinary spending plan. Building a fund for emergencies (three to six months’ worth of your ordinary expenses is a good target to start with) is something you should plan for, or it simply won’t happen; you won’t ever get there. Make this part of your routine budget every month, and make sure you put aside a specific amount at the beginning of each month, no matter how small (pay yourself first). If you wait to save what’s leftover at the end of the month, you’ll too often find there isn’t anything. Plan for this to be a long-term project; accumulating enough reserves to cover six months’ worth of expenses is going to take some time. Build in some rewards for yourself along the way as you achieve milestones! Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? |
![]() Lisa A. C. Frank Chairperson, Department of Finance Associate to the Dean, School of Business Central Connecticut State University |
What are some quick tips on saving up for a family emergency fund? The most efficient way to save for an emergency fund is to “pay yourself first.” The idea behind paying yourself first is to slice off the first percentage of your income (for example, 10% of income) and put it toward emergency fund savings. Each family’s circumstances will determine what percentage of savings makes sense. If total expenses are not greater than income, then the portion of income that remains after expenses are paid can be directed toward the emergency fund. Families with fluctuating income streams (for example, self-employed business owners) may have to adjust the percentage saved on a month-to-month basis. As a general rule of thumb, savings of 10% to 15% of income make it likely the family will have enough for their emergency fund within a few months. However, don’t be discouraged if you are not able to save that much. Any portion of income helps, and there are strategies for families that do not have any income remaining after expenses. If total expenses are greater than income, then there are two possible opportunities that will allow the family to continue to save for an emergency. The first is to seek areas in which to reduce expenses, whether temporarily or permanently. By reducing the amount of money spent on unnecessary expenses such as restaurants, subscriptions, or entertainment, for example, families can usually find a minimally disruptive way to curb expenses until the emergency fund goal is met. Once the goal is met, it will be important to continue to find means to bring expenses below income over the long term, to avoid the temptation to tap into the emergency fund in non-emergency situations. The second opportunity to allow for additional emergency fund savings is to earn additional income. There are two main ways to earn additional income: either seek out some part-time side work or sell some items that have been stored in the garage, attic, storage unit or basement that are no longer used or needed. Many families use a combination of these two methods to increase their income and build their emergency fund. Combining these with expense reductions will help a family achieve their emergency fund goal quickly. Finally, it’s important to stay focused on achieving the savings goal you’ve set for the emergency fund. To stay true to achieving that goal, brainstorm all of the reasons why it’s important to have an emergency fund and hold on to that knowledge. Remind yourself of that ‘why’ as you continue to save. This technique will help you maintain savings momentum, even in months when it seems difficult to put anything aside. Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? |
![]() Stacy A. Mastrolia Associate Professor of Accounting Freeman College of Management Bucknell University |
What are some quick tips on saving up for a family emergency fund? A fully-funded emergency fund should equal three to six months of your family’s normal expenses. Once you determine the amount of your emergency fund, you should calculate how long it will take you to save that amount. Having a concrete goal will help you figure out a plan to accomplish it. For example, if you need $15,000 for your emergency fund and want to have it saved in 6 months, you will need to save $2,500 per month to achieve that goal. Accumulating that much money can be a real challenge, so here are a few suggestions. First (if you don’t already have one), you need to make a budget. Assigning every dollar of your income a “job” will help you see how much you can put towards your emergency fund each month from your paycheck. Second, you could work a side hustle to increase your income. Does your current job offer overtime? Do you have a hobby or skill that you can use to make some extra money? For example, can you deliver pizzas, groceries, or take-out? Third, you could cut your expenses. Have you price-shopped your car or house insurance recently? Have you reviewed your debit/credit card statements looking for subscriptions you have that you don’t use? Is there an indulgence you are willing to forgo for a few months to save your emergency fund? Fourth, you could sell stuff that you don’t want or need anymore. Go through the attic, the garage, and the basement. Do you have extra furniture, tools, dishes, or appliances? You could hold a yard sale or sell items individually through an online marketplace. Once you know your goal, you can decide how much you are willing to sacrifice – not forever, just for a few months – to save up your family’s emergency fund faster. The deeper you sacrifice, the quicker you will achieve your goal and put a little bit of financial breathing room between your family and a financial disaster. Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? |
![]() Cathy McCrary Assistant Professor of Accounting Georgia Gwinnett College School of Business |
What are some quick tips on saving up for a family emergency fund?
Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? Again, to live up to its name, an emergency fund should be liquid (either cash or convertible to cash on demand). Otherwise, you wouldn’t be able to easily access it in an emergency. For some families, a high-yield checking account or money market account with check writing privileges or debit card will work. For other families, it might be wise to house the emergency fund in a savings account that’s tied to a checking account for relatively easy access. How can one handle the impact of inflation on their family emergency fund?
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![]() Mike Morgan Professor of Practice Department of Finance, Real Estate and Business Law College of Business & Economic Development The University of Southern Mississippi |
What are some quick tips on saving up for a family emergency fund? An emergency fund has to be a priority. So many little things pop up that cause us to postpone building up a reserve. Then when we really need it, we get in a bind and have to rely on credit cards or other debt. Trying to stash several thousand dollars in an emergency fund may sound overwhelming, but it is a very important first step in your financial plan. The pros say “pay yourself first,” meaning put something away as soon as the paycheck comes in. If you wait until the end of the month with the intention of putting what is left into a savings account, there is never anything left. Once you have managed to build an emergency fund, you have developed habits that will pay off in other parts of your financial life. Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? |
![]() Rebecca Neumann Professor and Director of Undergraduate Studies Department of Economics University of Wisconsin – Milwaukee |
What are some quick tips on saving up for a family emergency fund? Automatic saving is a great way to build up an emergency fund. Pulling even a small amount from each paycheck and having that automatically transferred into a savings account can be a great way to start building an emergency fund. Earmarking that account as an emergency fund can help families keep the focus on keeping those funds there for emergency purposes. If emergencies arise, then it is important to build that fund back up again. I encourage individuals to check with their bank to set up direct transfers to ensure that saving happens prior to spending! This is part of a good budget. Typically, a budget has been described as a plan for income and spending but I like to think of a budget as a plan for income, saving, and spending. Work the saving right into the budgeted amounts rather than waiting to see what amount is left over to save. In my volunteer work with SecureFutures and in my personal finance class at UW-Milwaukee, we talk about the three parts of a budget as: Income, Saving, Expenses. Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? |
![]() Ron Richter Assistant Professor of Professional Practice Rutgers Business School Department of Finance & Economics |
What are some quick tips on saving up for a family emergency fund? An emergency fund is especially important, and the first step in the process is to determine how much money you need for your emergency fund; typically three to six months of expenses. Budgeting is particularly important to set up an emergency fund goal, and then you need to plan on how to fund it every month. Without a measurable goal, it will be difficult to establish the emergency fund. Building it should be a priority as it will act as a catalyst to conquering other parts of your financial plan. Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? Here are some ways to battle the inflation issue:
People may be inclined to take more investment risk with their emergency fund to combat inflation, but remember this additional return potential does come with added market risk. This is a risk that emergency funds should not be taking. |
![]() Nejat Seyhun Jerome B. and Eileen M. York Professor of Business Administration Professor of Finance University of Michigan Stephen M. Ross School of Business |
What are some quick tips on saving up for a family emergency fund? The best way to acquire saving discipline is to save first and then allocate the remainder to life’s necessities and finally to some fun and indulgences. Savings also tend to be easiest by not increasing one’s standard of living when receiving windfall gains or salary increases. By keeping expenditures steady, all of the windfall or salary increase can be devoted to additional savings. A basic goal should be about 20% of one’s gross income. Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? |
![]() Ken Wu Associate Professor of Finance The University of Texas at Tyler Soules College of Business |
What are some quick tips on saving up for a family emergency fund? Every family should have an emergency fund that can support them for at least 1-3 months (sometimes more) if their income from employment is lost for reasons of illness, disability, etc. Families with only one breadwinner and unstable employment probably need more than that, up to six months. The best advice I can give is to save a little from each paycheck before any of it is spent until the desired amount has been accumulated. Where should one keep their family emergency fund? Is it best to have it liquid, in a checking account, a savings account, or elsewhere? How can one handle the impact of inflation on their family emergency fund? |