Your responsibility as a new parent isn’t really restricted to changing diapers and bringing home new toys for your baby every day. At the heart of your parenthood planning is your finances. Usually it doesn’t take much time for partners to decide whether they’re “emotionally” ready to welcome another member in their lives or not. And, once you realize that the answer is in an assertive, you embark on a well thought-out financial plan to ensure that your long cherished dream of parenthood comes into fruition.
An Emergency Fund: Your Stepping Stone towards the Creation of a Complete Financial System
An emergency fund is what you should start off with—a fund which will act as a cushion after you welcome the baby home – i.e. at a time when cashflow is likely to become a little tighter. It doesn’t matter whether you are required to get a sewage pipe fixed at your home or else get your baby treated on an emergency basis for some reason or the other – you should be able to do it without really turning to your credit cards.
Now, as a responsible would-be parent you need to understand the nuances of personal finance well. Even apparently “inconsequential” expenditures related to your plumbing or other day to day needs can have serious financial consequences that are beyond your control!
Are you turning to your credit cards to meet the day to day needs of your kid? Wait till the snowball effect starts taking a toll on your finances!
The key is not to let these untoward incidents mar the joy of parenthood! Here is a step by step guide with the help of which you will be able to build an emergency fund without breaking a sweat! Read on to unravel in the course of this post.
A Bigger or Smaller Emergency Fund?
The general rule of thumb is to build an emergency cash fund for 3-6 months. With at least 3 months’ of an emergency fund you will be able to handle potential catastrophes like minor inconveniences. In a way, you are ready to meet your unexpected expenses. There is nothing to throw you into a fit of panic or for that matter to make you turn to the scary debts including credit cards.
However, if you do feel that with your present earning and budget, it is a bit difficult to build a 3-month fund you can aim for a smaller one. The key is to build your fund in stages rather than jumping on a 3-month or 6-month goal.
The Different Stages of Building the Fund
The stage 1 of your fund building should be focused on irregular but expected expenses like any special treatment for the baby or mom, attending guests who might pay a surprise visit to your home to see your baby, car repairs (you wouldn’t want to procrastinate repairs if needed quite simply because of the fact that you will require the car to rush to the doctor to get your partner or baby treated during possible emergencies) and others. A regular deposit of $ 1,000 - $2,000 should keep you sorted when it comes to stage 1 of an emergency fund.
Stage two is meant for meeting true emergencies. What if you end up losing a job when your baby comes? What if you are supposed to pay up a huge hospital bill?