When should you use your emergency fund?
You’ve managed to save the recommended three to six months of finances for an emergency fund. Now, when is it ok to use it?
Rainy-day funds can be tempting to dip into every now and then, but before you use those savings you’ve worked so hard to build up, ask yourself, “Is this really an emergency?” Emergency funds are meant to provide a financial safety net for true emergencies and should be used only for expenses that meet three qualifications:
- Unexpected
- Necessary
- Immediate
What is an emergency?
Life is unpredictable, so whenever possible, protect your financial future by carefully evaluating each situation to determine its true status. Sudden job loss, medical bills and child accidents all qualify as emergencies. Other expenses may be more difficult to categorize as a true emergency. Examples of emergency fund expenses could include:
- Vehicle repairs/replacement
- Furnace/water heater/air conditioning unit replacement
- Unplanned job relocation
- Surgery or unplanned medical expense
- Pet accident requiring veterinary care
When is it not an emergency?
Expenses that are known in advance and can be planned for are not emergencies. Gift-giving holidays, vacations and home improvement projects can be costly and a great sale may provide a sense of urgency, but they are not immediate, necessary needs. There is a difference between needing a vehicle to get to and from work, and wanting a vehicle with the latest Wi-Fi technology. Examples of non-emergency expenses are:
- Upgrading to a new vehicle
- Replacing flooring in your home
- Booking a last-minute vacation
- Elective/plastic surgery
- New furniture
It feels good to treat yourself now and then, but resist the instant gratification for long-term satisfaction. Knowing you will be ok if the unexpected happens is worth it. Remind yourself how long you saved to fill your emergency fund and that you saved it for a reason. When that rainy day comes, you’ll be ready.