Information is brought to you by
Missy & Ruth Dynamic Duo
Brook Realty

When You Should and Shouldn't Use Money From Your Emergency Fund

People sometimes set aside money for a rainy day, but don’t know when they should tap into their emergency fund and when they shouldn’t. It’s important to be able to distinguish between needs and wants so you don’t use your savings for the wrong things, just to find yourself unable to cover essentials when a true emergency arises.

What Is an Emergency?
A job loss or pay cut, home or car repairs that can’t wait, urgent medical care for a member of your family that your insurance doesn’t cover and unexpected travel, such as visiting a loved one who is in the hospital or attending a funeral, are examples of emergencies. In those types of situations, you may have to tap into your emergency fund.

What Is Not an Emergency?
Anticipated expenses, such as property and income taxes, routine home and auto maintenance, and gifts for birthdays and holidays are not emergencies. If you want to take a vacation or attend a friend’s wedding, you will have months to plan and save. If you’re thinking about buying a car or a house, you will have months, if not years, to save up for a down payment. Factor those expenses into your regular budget and set up one or more savings accounts to keep money for those goals separate from your emergency fund.

How to Avoid Using Your Emergency Fund
If you experience a true emergency, such as a job loss, look for ways to cut expenses before you dip into your emergency fund. You may be able to cut back on entertainment costs and work with your creditors to postpone or reduce your monthly payments. You may be able to pick up a part-time job or a side gig, or sell some items you own to make some quick cash. Once you have explored all those options, you may have to use your emergency fund, but you won’t go through all the money right away. 

How Much Should You Have in Your Emergency Fund?
Work on setting aside enough money to cover essential living expenses for at least three months. If that goal seems overwhelming, start small. Look for areas where you can cut back and put the money you save into an emergency fund. Even $500 is a good start. Once you have made some changes and have begun to see your savings account balance grow, your initial success may motivate you to save even more.

Replace Money in Your Emergency Fund as Soon as Possible
Life happens. If you have to use your emergency fund for a legitimate purpose, don’t feel guilty. Just be sure to build the fund back up after your financial situation stabilizes so you’ll be prepared if another setback occurs.