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When to Dip Into Your Emergency Savings Fund


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If you look up "emergency" in Merriam-Webster's dictionary, you'll see the definition is listed as, "an unexpected and usually dangerous situation that calls for immediate action."  When considering whether a specific expense is an appropriate use of the emergency savings fund you probably saved for years to accumulate, the word unexpected is key. 

As we discussed in a previous blog, most financial experts recommend that you keep three to six months’ worth of living expenses in an emergency fund. The recommended amount will vary depending on whether you're single or married and what your financial situation looks like. If, for example, you’re married, your spouse works, and you have little debt, an emergency fund consisting of three months of living expenses may be sufficient. Similarly, if you’re single with little debt and relatively large amount of liquid funds to draw on, you may be able to get away with a smaller emergency fund. Regardless, the reasons for an emergency savings fund are pretty straightforward.

Emergencies worthy of your emergency savings fund

You've saved an emergency fund for a reason: in a true disaster, you'll have the funds to cover your expenses without incurring debt. There are a number of situations that justify withdrawing funds from your emergency stash:

  • Unforeseen medical emergency of your own or a close relative you must care for

  • Loss of income from job elimination or illness/injury that prevents you from working

  • Unexpected, necessary, and major home repair 

  • Unexpected replacement or major repair of your vehicle, if the car is your primary transportation

The situations above are unavoidable and unforeseeable. Without your emergency fund, you probably would be forced to pay associated expenses by credit card and carry a balance for several months or longer, racking up a huge interest charge along the way. Saving those hefty interest fees is exactly why you built up your emergency fund! Therefore, when an unfortunate situation like one of the above happens to you, you are justified in withdrawing the money from your emergency fund and replenishing the fund as quickly as possible.

You might also be interested in: Steps You Should Take AFTER You Pay Off Your Credit Cards

Non-emergency expenses

Regrettably, as adult humans, we all receive unwelcome bills on a regular basis. Most of these bills are NOT reasons to tap your emergency fund. Let's look at some examples so we can differentiate between a true emergency and just something we'd rather not spend money on:

  • Home Repairs: above, we defined a home maintenance emergency as a home repair that's unexpected, necessary, and major. That means a bathroom remodel is not an emergency unless you discover a major leak has damaged your walls or floor, requiring replacement. Likewise, your desire for a new deck is not an emergency; replacing a deck that has collapsed or is in danger of collapsing qualifies for emergency funding.

  • Car Repairs: we've established that the unexpected replacement or major repair of your vehicle is an emergency if the car is your primary transportation. What if your car's brakes need to be replaced immediately? That does not qualify as an emergency expense since it is not truly unexpected; all cars need regular repairs like brake work. If, however, you are in a car accident and total or badly damage your perfectly operational car, requiring a new car purchase or costly repairs, that qualifies as an emergency since it was not foreseeable.

How to pay for unavoidable but non-emergency expenses

Now that you understand what qualifies as an emergency, you're left with plenty of ambiguously timed expenses that are not to be paid from emergency funds. How do you pay for those? Plan ahead!

Using the car example above, you know vehicles need routine maintenance and repairs as they age and parts wear out, and you must anticipate and save for these expenses. Similarly, if you're a homeowner, you know you must pay for routine upkeep and repair expenses on your house. Therefore, you must set aside some money in a savings account on a regular basis, to cover those expenses as they come up.

If you plan ahead, routine bigger bills will never feel like an emergency, because you'll have money in savings to cover the expenses, removing the temptation of raiding your emergency savings fund and leaving your emergency money intact for a truly unexpected and urgent situation.

For more savings and financial management advice, check out our ebook, Adulting: Money Essentials for Grown Ups.

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