Why New Parents Need a Flexible Emergency Fund

Congratulations, you’re a new parent or soon to be a new parent. I still remember the day our oldest was born and calming her down in the middle of the first night at the hospital. I loved it. I was thankful that I was blessed with such a beautiful child and great responsibility. But what comes with that responsibility? Of course, many factors play a part and, financially speaking, being ready for the unknown may be the most important.

Why You Need an Emergency Fund

Make sure you have your emergency fund or, as my dad calls it, the oh sh*t fund. After your baby is born cash flow can be a little tighter. The flexibility in your cash flow is tighter and you can’t just pull out money if your child needs to go the emergency room for some stitches or your sewer backs up. The last thing you want to become is reliant on your credit cards for unexpected costs. This starts a snowball effect and your debt just keeps increasing. (For more from this author, see: 5 Budgeting Steps for Young Families to Follow.)

So what do I need for an emergency fund you are asking? Well, it is going to depend on your expenses and your own risk tolerance but here are some steps to get you going.

  • Determine how many months of expenses you feel you need to cover.
    • Amount is usually around 3-6 months of expenses.
    • Base this on the following:
      • Job security
      • Your network resources
      • Your willingness to cut back on expenses
      • Emotional and mental strength
  • Monthly income x the number of months you need to cover = emergency fund amount.
  • Decide on amount you can steadily save every month.
  • If you need to reach your goal faster (upcoming child, car is falling apart, buying a house soon), then find unnecessary expenses you can cut out.

By creating an emergency fund, you are embracing financial responsibility for your new family. As a couple, having an emergency fund is rewarding and provides peace of mind knowing that you are prepared financially and are able to take care of your child if something were to happen.

The Importance of Being Flexible

Tying back to the beginning though, being flexible is important. If you have been saving for a down payment for a house to bring your baby home to, you can also treat this fund as your emergency fund if the worse happens. It is better to use your cash that you have and go behind on a goal than taking on a large amount of debt at a high interest rate because this can potentially destroy any future goals after you purchase your house.

This mindset of keeping money stowed away for a certain purpose that could help in another aspect of your life should be avoided. It is important to save for goals and have budget categories but if you overspend or an emergency comes up, don’t be afraid to use the cash that hasn’t been spent. You can start again and be in a much better financial situation than taking on debt because that debt then becomes a goal. (For more, see: Why An Emergency Fund Is Important.)