It is important for young adults to get into the habit of setting aside an emergency fund to handle living expenses for a given period as it also gets them in the mindset of being prepared for other, bigger problems such as home repairs.


A house or condominium isn’t an everlasting thing. Roofs and siding weather and appliances break so home owners also need to set aside funds to replace the water heater that breaks down or replace shingles that will one day wear out. If they already have an emergency fund established, it is easier for young adults to expand it and plan for those bigger ticket expenses. Once they are able to adopt the “pay-yourself-first” principle of savings, it becomes the foundation for any goal the kids have in mind and a more independent attitude to perhaps hold off on future temptations to try and tap the bank of mom and dad.

How to Talk to Your Children About Creating an Emergency Fund?

Personal BudgetCalculating net worth and evaluating their path toward retirement can be encouraging for parents who are well prepared, but seeing how far apart they are might be discouraging to their kids. While it is important to start thinking about building net worth and saving for retirement, kids need to focus more on immediate needs than fixate on that end goal before they’ve had a chance to get started. A good place to start is the concept of having an emergency fund. Discussion about proper financial planning will come later, but for the moment, raising questions about what kids would do in the case of a minor disaster. Consider the following questions:

How would they handle an unexpected vehicle repair?

How long would they be able to live on their savings in the case of a sudden loss of employment? 

What happens if a health emergency comes up and they can’t work?

The answer to these questions comes down to the adult children’s need for an emergency fund. An emergency fund gives both sides an immediate goal to focus on that can translate into resources for those long-term goals and a chance to build a lifelong discipline to be financially prepared.

It can be daunting in the beginning. How do you know what emergency is going to crop up? How much will it cost to fix or cope with the emergency? As a general rule, financial experts recommend aiming to set aside three to six months’ worth of living expenses as a place to start as a helpful financial buffer to weather a financial rough patch. Some suggest aiming for more such as eight months or longer. That can seem formidable in itself but there is an easy way to get there: Adopt the “pay-your- self-first” principle of saving.

The first step is to add up the following necessary monthly expenses:

Rent or mortgage.

Utilities including heat, power, phone, and cable bills.

Debt servicing including student loans, vehicle payments, and any other outstanding credit (which is an opportunity to get adult children to confront more damaging forms of consumer debt such as carrying balances on credit cards).

Insurance costs including health, vehicle, and rental/ home.

Groceries (this is a good chance to get kids thinking about the frugality of cooking basic foods at home versus dining out at restaurants).

The next step is to open a basic savings account (look for one that doesn’t involve fees), which is separate from the checking account they spend money from that is attached to a debit card. Considering how much they earn, use that monthly expense figure to establish how much they can comfortably set aside per month towards meeting the emergency fund goal. Set up their checking account so that whenever they deposit a paycheck, an automatic transfer from their checking account will go into the emergency fund account. That way, they start saving without having to think about it, until they look at their bank statement to see how the money is adding up to meet that specific goal. After a while, they likely won’t miss having the money in their checking account (and they will not have the temptation to spend it).

For more tips on how to handle the financial needs of your adult children read Derrick Penner's book, The Bank of Mom and Dad.