When To Use Your Emergency Fund (And When Not To)

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Setting aside enough emergency savings is one thing, but what actually justifies spending that money?

Life can be pretty unexpected but having an emergency fund is one of the best ways to become financially prepared for whatever may come your way. According to the Federal Reserve, more Americans have improved their amount of emergency savings since 2013.

Do you ever feel the need to hold onto your emergency fund no matter what? Or, do you struggle with actually keeping the money tucked away until a real emergency arises? These are not uncommon struggles. Luckily, there are a few key ways to determine exactly when you should use your emergency fund.

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When Should I Use My Emergency Fund?

It’s important to get clear on what you’re saving money in an emergency fund or rainy day fund in the first place. Determine what you consider to be a true emergency. Below are just a few common uses for emergency fund money that you might want to consider.

Job Loss

If you suddenly lose your job, this could have a big impact on your household finances. Having an emergency fund to fall back on could help you pay for necessities like your home, utilities, and food. This will help you stay afloat while you look for a new job.

Some financial experts recommend saving around three to six months of expenses in your emergency fund on average. According to Monster, the average successful job search spans about five months.

Another reason to use your emergency savings account could be if you’re working a seasonal job and need money to supplement your expenses during the slower months. Freelancers and contractors could also benefit from having a larger emergency fund cushion to use during lower income months.

Vehicle Repairs

Vehicle repairs are often not cheap but can be a necessity if you rely on your car daily to get places. While it’s important to save for planned maintenance and similar expenses, you can’t really control if your car breaks down unexpectedly or worse — you get into an accident.

Most auto insurance companies will require you to pay a deductible of at least $500 before they cover repairs — and only those specified in your policy. This is money that could come from your emergency fund if you feel it’s necessary. Think about how vehicle repairs might affect your ability to get to work, take your kids to school, etc. without paying for necessary and unexpected car repairs.

Medical Emergency

Medical emergencies can be scary. However, this also isn’t a time to stress out about money and medical bills.

Health insurance may cover some of your medical expenses but not all. Whether you’re sick or someone in your family is or there’s an accident, having an emergency fund to count on can be a major relief. That way, you can focus on prioritizing your health, taking time off, and doing whatever you need to do.

Other Emergency Situations

Other emergency situations, like a natural disaster, could require the use of emergency funds as well. Having a solid emergency fund could help you cover immediate costs and provide peace of mind.

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Saving For Planned Expenses vs. Emergency Fund Money

The sole purpose of an emergency fund is to help you cover unexpected expenses that you didn’t see coming. However, it can be easy to mix up emergency costs with expenses that you could plan for — like Christmas for example.

Each year, Christmas occurs on December 25th. Yes, you could lose track of time and the holiday season could pop up on you, but there’s also the opportunity to start planning ahead so it doesn’t become an emergency expense.

If you don’t want to waste your emergency fund money on non-emergency expenses, consider setting up a few sinking funds.

What Are Sinking Funds and How Do They Work?

A sinking fund is money that you set aside for an expense that you know you’re going to incur in the future. Planning to renovate your kitchen or install tinted windows on your car? These don’t have to be expenses that catch you off guard.

Instead, you can set a budget and save for these costs well in advance. How that might look like is setting $200 per month aside for your kitchen renovation, $100 per month aside for your tinted windows, then $300 separately to go into your emergency fund. Some other common sinking fund categories include:

  • Back-to-school
  • Christmas and holidays
  • Vacations
  • Basic home or car maintenance
  • Annual fees
  • Home maintenance

The big difference is that with sinking funds you know exactly what you’re saving for and with an emergency fund, you don’t. The danger with using your emergency fund for planned spending like for holidays or vacations is that you may not have anything left to cover an emergency like if your car breaks down. By saving for both planned expenses and unplanned ones, you’ll have a lot more financial security when it comes to facing what the future might hold.

How to Stretch Your Emergency Fund

You worked hard to save up a sizeable financial safety net in your emergency fund. So it’s understandable that you may not want to spend all that savings at once even if it’s for a good cause. An emergency fund can be used as a last resort after you’ve exhausted other options to supplement your expenses.

For example, you might be able to take advantage of unemployment benefits if you suddenly lose your job and use emergency savings to fill in the gap before benefits kick in. Another option is to consider making a ‘crisis budget’ or a bare-bones budget including only expenses that are absolutely necessary. This can help lower your spending overall so you’ll end up using less of your emergency fund.

When it comes to your debt accounts, stick to paying only the minimum if you find yourself in an emergency situation, and also contact your creditors and credit card companies to see if they can provide any deferment or payment plans.

Best Alternatives to Using Emergency Savings 

Not wanting to use your emergency savings at all? This is ultimately your call since it’s your money. If you feel an expense is not a true emergency or would rather just keep building your emergency savings, you can find other ways to cash flow your needs without touching this money.

Instead of using your emergency fund, you could:

  • Get a side hustle or make extra money. Nearly one in three Americans have a side hustle and many need extra income to meet their needs. The key is seeing if you can cover your living expenses with your main income and use your side income for other financial goals and extra spending. If you diversify your income with a side hustle or part-time job, you could use this money to save more or cash flow unexpected expenses.
  • Refinance your debt. Refinancing your debt can help you save money on interest and lower your minimum payment. If your car payment is too high, you can save money by refinancing your car loan. After refinancing, your first payment is deferred so you can enjoy one-to-three months without payments depending on your lender.
  • Lower your spending. For smaller emergency expenses, see if you can lower your spending in other areas to help you avoid touching your emergency fund. For example, if you get charged an unexpected fee or your utility bill is $120 more than you expected, you may be able to tighten up your budget for that month to free up money so you can cover that expense.
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4 Steps to Rebuild Your Emergency Fund

When you withdraw a lot of money from your emergency fund, you may be motivated to rebuild your savings as quickly as you can. Realize that you don’t have to rush the process of rebuilding your emergency fund and that developing a consistent savings habit is what’s most important. Here are four steps to help you start rebuilding your emergency fund:

Step 1: Set a Goal

Determine how much you wish to save or add to your emergency fund. Maybe it’s been a rough year and you withdrew more than anticipated. This may lead you to increase your savings goal. Either way, settle on an amount that seems reasonable to you.

Step 2: Break the Goal Up

Saving a huge amount of money can seem daunting so it’s best to break that goal up. If you say you want to add $5,000 to your emergency fund, you can break this up by setting a smaller goal of saving $100 or $500 per month. Furthermore, if your goal is to save six months’ worth of expenses, start by setting aside an equivalent of one months’ expenses first.

Step 3: Budget For Savings

It’s unlikely that you will save money by accident. You need a plan. Budget for savings by creating a category with a specific amount to contribute to your emergency fund each month. Commit to this goal by transferring your savings first as soon as you get paid. You can even set up automatic transfers from your checking account. Then, continue budgeting the rest of your money as you normally would for the remainder of the month. This may involve cutting some expenses and making a few sacrifices but remember it’s only temporary.

Step 4: Find Ways to Earn Extra

Speed up your process and increase the amount you’re able to save by earning extra money. You can do this with a side hustle or see if you can pick up hours at your main job. Use any bonuses or windfalls like a tax refund to put enough money toward your emergency savings goal.

You can also pick up temporary side jobs to earn money quickly whether it’s offering to babysit a friend’s child, helping someone move, writing resumes, providing lawn care, etc. Consider putting your money in a high-yield savings account so it can earn interest.

Emergency Fund Spending Should Be Part of Every Financial Plan

Remember, personal finance is personal, and you ultimately decide when you use your emergency fund money. When you’re considering withdrawing the money, ask yourself whether the expense is unexpected and urgent. If it can wait a while, you may not want to touch your savings and can consider other alternatives. However, if you do spend what’s in your emergency fund, realize that you can always replenish your savings in the future.

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About The Author


Choncé Maddox

Choncé Maddox is a Certified Financial Education Instructor (CFEI) and personal finance freelance writer. Her work has been featured on LendingTree, CreditSesame, and Barclaycard. She earned a Bachelor's degree in Journalism and Communications from Northern Illinois University and resides with her family in the Chicago area.


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