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How to Prepare Your Family For a Financial Emergency? To prepare yourself for financial trouble, you need to have at least 3-6 months’ worth of expenses saved up.
When I say expenses, I mean your bare expenses. Take all of the luxuries out of your bills and you’ll know exactly how much money you need to survive each month.
How to Prepare Your Family For a Financial Emergency
How much do you have in the bank right now? No wait, don’t tell me. Instead, just look for yourself. Then ask yourself one question:
“What would happen to my family if all of my income sources went away?”
Do you have an answer? Is it a bad one? Is it a good one? Would your family be able to survive only on what’s in your bank accounts right now?
If you’re like most people, the answer is, unfortunately, “probably not.”
Why you need to save money
Preparing your family for a financial crisis is honestly the single most important prep that you can do. You can prep all you want for weather-related incidents, but in truth, if the weather is bad enough, all of your preps might not make a difference.
Failing to prep for a financial crisis though can literally tear your family apart at the seams though. Loss of income can cause loss of your home, kids going hungry, marital fights, and more.
So how do you protect yourself?
You save. It really is that simple.
What are your expenses?
Your basics are household costs, food, utilities, and any school costs that your kids have. Everything else should be considered a luxury and if you’re living with no income coming in, unable to be paid for.
These are the items that you pay extra to have in your life so if you don’t have extra money coming in, then doesn’t it make sense that you can’t have extra items in your budget?
Three to six months is the absolute minimum that you should have, but if you want to be really prudent about it, save a year’s worth of expenses. Loss of a job can sometimes be a very long situation and if you have a year of expenses in the bank, you’ll know 100% sure that you’re covered.
Building an emergency fund is critical for financial security and, more importantly, peace of mind. Many Americans admit to being kept up at night, losing focus at work, and even struggling with anxiety because of financial stressors at home. If you’re one of them, I hope I can help you find peace in building your emergency fund – even if you don’t have loads of extra money just sitting around.
3 Steps to Build Your Emergency Fund FAST
In the financial world, everyone talks about getting out of debt, buying a house, and building an emergency fund. Whether your emergency fund is a “baby” fund at $1,000 (the bare minimum), or looks more like $10,000, evaluating where you’re at and setting goals will help you achieve them much faster.
Prepare Your Family For a Financial Emergency: Evaluate where you’re at.
You can’t move forward unless you know where the starting line is. The baseline is where you’re at right now, with everything else being UP from here. Start with an evaluation, and be honest with yourself. If you’re spending way too much money on fast food or makeup, don’t beat yourself up over it – just fix it.
To do a thorough evaluation, check your bank account, Paypal, Cash App, etc. This includes prepaid debit cards or any other accounts you may stash and spend money from.
How’s your money situation? Is your income higher than your expenses? How much extra do you have each week, or each month? Write all these numbers down, as they’re equally important in figuring out where you’re at, and fixing the leaks. We’ll talk about that in a moment.
I like to print off my bank statements and go through everything line by line to see where my money is going. You can print 1, 3, 6, or even 12 months off at a time. It all depends on how in-depth you want this financial audit to be.
Check out these great books to read on how to change your financial situation:
The Simple Path to Wealth and Total Money Makeover by Dave Ramsey. They are both worth looking into.
Prepare Your Family For a Financial Emergency: Fix the leaks.
After I’ve printed off my bank statements, I go through and highlight necessary expenses in one color, and unnecessary expenses in another color. This is an easy way to see what’s going on at a glance. I like to call unnecessary expenses “leaks”. If you want your boat in tip-top shape, you must repair all the leaks!
How often did you purchase fast food? How expensive was your last date night? How many last-minute grocery trips did you take because you didn’t have a meal plan? How many times did you buy a soda or snacks from the gas station? How many coffee runs did you make?
Everyone has their own budget leaks, so take some time to sit down and figure out what yours are. While going through your bank statements, the leaks will usually become clear pretty quickly! Many of us have expenses each week, or even every few days, that we don’t consciously take into account when evaluating our financial situation. These are the most dangerous leaks, because we don’t even realize we have them!
Fixing the leaks is a must, no matter how much money you make – or how tiny the leaks may seem at first. If you add up all the “little” leaks over a 6 or 12 month period, you’re going to notice your boat is sinking much faster than you may have realized. Either way, the leaks need to be patched, right? Small or large, they’ll still cause problems.
You don’t have to go from 100 all the way down to 0 overnight. What I mean is, if you’re used to a coffee run every morning, you don’t have to quit cold turkey. Buy coffee to make at home and see how close you can get it to what you’re used to. Then, start cutting back.
You may realize you like the coffee you make at home even more than the stuff you get at the coffee shop. I know when I cut back on coffee runs, I loved that I could make it at home and choose my favorite brand of syrups. Plus, plant milk is an additional $.60 when I get it added to my coffee at Starbucks. At home, I can have a gallon of it and it’ll last forever! 🙂
Next, we will talk a little about adding income to your budget. Even if you make a large salary, you’ll need to fix the leaks to find extra money to build that emergency fund.
Prepare Your Family For a Financial Emergency: Make more money.
Building an emergency fund comes down to a simple principle: more money in, less money out. If your income isn’t already covering your bills with some left over to add to your emergency fund, changes need to be made. The good news is, these changes aren’t painful. The bad news? You’re not going to build your emergency fund overnight.
There are hundreds of ways to make extra money to build your emergency fund faster. Whether you start a blog as a semi-passive long-term income stream, or you deliver for UberEats after your 9 to 5 job, the amount of extra income you can earn from a side hustle is endless.
Even if you can cut expenses, most likely you’ll still need more income. YouTube is a wealth of information, complete with full videos (all for free!) about how people just like you and me became millionaires because of their side hustles. While the millionaire life isn’t everyone’s goal, you can easily make an extra thousand dollars a month (or more!) with side hustles.
The next steps…
No matter how intense you are with fixing your financial leaks or making more money with a side hustle, your journey is your own and you shouldn’t feel bad about any setbacks.
Life happens, things get in the way, and paying off debt can be painstakingly slow. However, you’re on the right path and you CAN do this! Keep reminding yourself of that! Negative self-talk can set you back even more, so keep it positive.
As I said at the very beginning of this post, not preparing your family for financial stress and trouble is just asking for trouble. If you don’t feel as if you can save even 3 months’ expenses, that’s fine. Just try to do something. A little bit in the bank is better than nothing in the bank.
Leave me a comment and let me know what your emergency fund plan is! I’d love to hear it.
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I think this question “Would your family be able to survive only on what’s in your bank accounts right now?” is way too simplistic. It doesn’t take into account that noone can live for the rest of their lives on what is in their bank account today. I think you need to reword the question, if you want the questions to have meaning/value.
And yes, one should have three to six months of expenses in savings, at least.