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Why families should have 2 emergency funds

Many adult children of immigrants want to pay their parents back, even when it's a financial strain.

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

When it comes to being financially prepared for unexpected expenses, an emergency fund can really come in handy. In fact, experts say that you should aim to save three to six months' worth of expenses in an emergency fund so that in the event of a loss of income, you should be able to cover all your necessary expenses — like food, rent, loan payments and insurance — for up to six months to buy yourself time to get a new job.

But for many people belonging to immigrant and first-generation American families, one emergency fund might not cut it. Of course, anyone, regardless of their background, will want to help their family through a surprise financial obligation. Though, many adult children of immigrants often feel pressured to "pay their families back" for their sacrifices by shouldering some of those big expenses — even when it means putting a financial strain on themselves.

This is where having two emergency funds can come in. According to Latina money expert Jannese Torres-Rodriguez, the idea of having an emergency fund for herself and one for her family came from her financial planner — and it's an idea that can help provide financial assistance to your family without totally draining your own emergency fund.

The biggest mistake people make

There are different approaches to preparing for an emergency but according to Torres-Rodriguez, the biggest mistake people make is to think that it can't happen to them.

"The biggest thing people get wrong when it comes to having an emergency fund is thinking 'it can't happen to me,'" she said. "It's not if it'll happen, but when it'll happen. And when you have an emergency fund, you can relax a little knowing that you're prepared."

How to tackle building two emergency funds

The idea of having to build not one but two emergency funds can be overwhelming — especially if you're already saddled with many of your own expenses and financial obligations. But as with anything, proper preparation can take some time and it doesn't need to all be done at once.

"When it comes to planning for two emergency funds, it's the same idea as being on a plane and putting your oxygen mask on first," Torres-Rodriguez said. "Prioritize yourself first, then you can figure out how much assistance you can comfortably extend to your family."

But if you feel that saving up for two emergency funds is beyond your financial capabilities, you can encourage your family to collaborate with you on building their emergency fund. Explain that the money should be used for unexpected expenses — like a medical bill or surprise home repair — and that preparing now can help them avoid going further into debt to cover such an expense.

Then once you set up the account, you can show your family members how to transfer money to it whenever they can — $20 here and $30 there can really add up over time! Plus, having your whole family pitch in instead of shouldering the obligation alone can relieve some financial pressure and help them build their emergency fund faster.

Getting started with your own emergency fund

Select put together a handy guide for getting started with an emergency fund but Torres-Rodriguez also had a few pointers for anyone who's new to saving for surprises.

"Start by understanding your monthly obligations and what would need to be paid for," she explained. "This could be insurance, transportation costs, student loan payments and other things you don't want to fall behind on. Then, multiply that amount by the number of months you want to save for and that will be the total amount for a fully funded emergency account."

She also explained that you should avoid putting your emergency money in the same savings account you use for your other goals. Ideally, you'd want your emergency fund to be stored in a high-yield savings account so your money can keep growing even if you don't contribute to the account. And, it should be hard to access the money with a debit card so you aren't tempted to spend for non-emergencies.

Personally speaking, I've been really satisfied with the Marcus by Goldman Sachs High Yield Online Savings account. It took just about 10 minutes to sign up for and it was really easy to link my checking account so I can make transfers. There's also no minimum deposit needed, so you can take that first step to open the account and fund it when you're ready or have the money available, no matter the amount. Ally also offers the Ally Online Savings Account which has a "buckets" feature to help you organize different savings goals.

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a Member FDIC.
  • Annual Percentage Yield (APY)

    1.20%

  • Minimum balance

    None to open; $1 to earn interest

  • Monthly fee

    None

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

    None

  • Overdraft fees

    N/A

  • Offer checking account?

    No

  • Offer ATM card?

    No

Terms apply.

Ally Bank Online Savings Account

Ally Bank is a Member FDIC.
  • Annual Percentage Yield (APY)

    1.25%

  • Minimum balance

    None

  • Monthly fee

    No monthly maintenance fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

    $10 per transaction

  • Overdraft fees

    $25

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes, if have an Ally checking account

Terms apply.

Bottom line

It's natural to immediately want to help your family cover large emergency expenses. But emptying your personal emergency fund for a family expense could put you in a bad situation if you wound up with a surprise expense of your own. This is why having a personal emergency fund and a family emergency fund can allow you to help your parents and siblings while still planning for your own future emergencies.

There are many ways you can go about executing this idea, but the worst thing you could do is think that you won't ever have an unexpected expense. Having an emergency fund can give you that much-needed wiggle room to breathe a little easier.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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