The importance of having a family emergency fund has certainly been highlighted with COVID-19 continuing to cause economic instability. Many families faced, and some still face, economic burdens, from job loss to having kids stay at home.

Did you know that 3.1 million Canadians were impacted by COVID-19 job loss? In the U.S. that number is much higher with an estimated 20.5 million Americans unemployed in May 2020.

Many families did not have a family emergency fund to fall back on in these times of financial hardship.

What is an emergency fund exactly?

Having an emergency fund in place can help families navigate periods of financial hardship, or cover costly unexpected expenses. An emergency fund is exactly what the name entails, a fund for an emergency.

Situations when a family emergency fund can come in handy are:

• Unexpected medical expenses that are critical to the well-being and health of a family member (i.e. medical emergency, chronic disease diagnosis)
• Car repairs on the family car that are needed to keep, or make, the family car operable
• Major home repairs that affect the well-being of the family (i.e. broken water heater or fire damage to the home)
• Period of unemployment or lost wages (i.e. the COVID-19 pandemic)

Why your family needs an emergency fund

A family emergency fund is no longer a “maybe” in today’s uncertain economic climate. It is a must have in order to keep the family finances afloat. Why does your family need an emergency fund? Emergency funds give families large and small a buffer.

In many recent cases, the injection of cash from an emergency fund could mean the difference between eviction and having a roof over your family’s heads. It is estimated that 30-40 million U.S. renters are at risk for eviction due to COVID-19, according to The Aspen Institute.

An emergency fund can also keep families from falling into the credit card debt cycle. Families without a family emergency fund during the coronavirus pandemic relied on credit cards and high interest loans to weather the financial storm.

How much family emergency funds should we have?

This is the first, and most important question to ask. As head of the household, you need to understand your family finances inside and out in order to calculate just how much money you need in your family emergency fund.

The amount needed in your emergency fund does depend on your family’s financial needs. However, a good guideline to follow is three months to six months worth of funds to cover family bills. Monthly family costs include:

• Rent or mortgage
• Home insurance
• Car payment
• Vehicle insurance
• Utility bills
• Life insurance
• Medical coverage
• Monthly food costs

Yes, putting three months to six months of income toward a family emergency fund sounds challenging. Especially if money is already tight every month. However, $1000 in an emergency fund may not go far when job loss or other unexpected financial issues arise.

Savings accounts for family emergency funds

A family emergency fund can be set up a few different ways. You can keep the emergency funds in your regular savings account, or you can look into savings accounts that help accrue more money over time.

The first savings account option for family emergency funds is a high interest savings account with your current financial institution or bank. This savings account should be separate from your other savings accounts to decrease temptation to spend those funds.

This allows your family to get quick access to emergency funds when financial hardship strikes. Talk to your financial institution about emergency fund account options and compare interest rates wisely.

Next option for family emergency funds is a high-yield savings account. These types of savings accounts are insured and safe. And the money you have in the account will earn interest, growing your emergency funds over time.

Here are 3 high-yield savings account options to consider:

Marcus by Goldman Sachs Online Savings Account

The Marcus by Goldman Sachs online savings account is a great high-yield savings account option with a higher national average rate. There are also no fees and no minimum deposit, making it perfect for starting your family emergency fund if you don’t have a lot of funds to begin with.

Discover Bank Online Savings Account

The Discover bank online savings account is another high-yield account enticing for families looking to start an emergency fund. With a 0.60 percent annual yield, no fees, and no minimum deposit, this emergency fund option is worth considering.

Canada EQ Bank Savings Account

EQ Bank savings account serves up serious benefits for families ready to set up family emergency funds. The EQ Bank has no monthly account fees, 1.70 percent interest on every dollar in the account, and no minimum balance to open. There are even international transfer options.

5 family emergency fund saving tips

Setting up a high-yield savings account for your family emergency funds is the easy part. Saving money to put toward your family emergency fund takes a bit of work. The following 5 family emergency fund saving tips may help.

1. Set an emergency fund goal

The first step to setting up a family emergency fund is to calculate how much your family will need to weather a financial storm. A good rule of thumb is to set the goal high, which would be enough money to last six months. This amount will be based on your monthly expenses. But only calculate the essentials.

2. Have a monthly savings goal

This is the second step, and maybe the most important. To save money, you need to have a monthly money savings goal in place. This will take some dedication. Unforeseen monthly expenses will arise, just be sure to stay on track as best as possible.

3. Have a savings jar in the kitchen

This may seem silly, since we all remember the savings jar we had as kids. However, there is something to be said about the effectiveness of a savings jar. To make this work as an adult, keep the change you get from spending money.

For example, if you buy a pizza for $18.35, put the change of $1.65 in the savings jar. When the jar gets full, head to the bank and make a deposit.

4. Deposit money into the emergency fund account often

Holding onto money in places other than your family emergency fund savings account can decrease savings. As soon as you have money dedicated and ready to be deposited, do it ASAP.

If you are dedicating a percentage of your paycheck to the emergency fund, set up automatic deposits to ensure money goes where it is supposed to.

5. Redirect your tax returns every year

Taxes are simply something we have to deal with, especially when family finances are in play. But tax season can have a slight upside, because you can redirect your tax return cash to your family emergency fund. This can help you and your family build emergency funds fast.

Does your family have a family emergency fund?

With so many uncertainties these days, especially in the form of financial uncertainties, it has never been a better time to set up a family emergency fund. And if you have a family emergency fund, it may be time to assess how much you have in the account, and decide if you need more.

Keep your family safe with a financial buffer that can help weather any storm. From pandemics to unexpected expenses, a family emergency fund could make a big time impact on your overall family’s well-being. Is it time to set up an emergency fund for your family?