You've worked hard to build your emergency fund, setting aside money to cover you when you're hit with a sudden big expense like a medical bill or home repair. Now you're facing one of those expenses. Has the time come to use your emergency fund?
That depends. You should tap into these savings only when you truly need it. Otherwise, you risk not having enough cash if an even bigger emergency pops up. But what qualifies as an emergency? Let's take a look.
When you should use your emergency fund
Emergency funds are meant to be used when you need them. But you may not want to use the cash for every financial hardship. Here are some times when it might be warranted:
✅ When you lose your job
Losing your job typically means losing your primary source of income. While some employers give severance pay, not all do. If you've lost your job, it could be a wise time to tap into your emergency fund while you search for a new one. You can use the cash for essential expenses such as housing payments, utilities and groceries.
Experts recommend having three to six months' worth of living expenses in your emergency savings. But don't let this number deter you. Anything you can set aside can be invaluable in an emergency.
✅ When you're faced with big medical bills
Medical costs can add up quickly. Whether it's a broken bone or a sudden illness, your bills could easily total thousands of dollars. And when it comes to your health, some things can't be put off until later. Paying urgent medical costs is the perfect time to tap into your emergency fund.
✅ When you need to make emergency home repairs
When you own a home, it’s smart to have a budget specifically for regular home maintenance. But sometimes, you're hit with an unexpected repair that costs more than you have on hand. From a busted HVAC system to a leaky roof, these types of expenses are worth using your emergency fund for.
✅ When your pet needs emergency care
Taking care of pets can be expensive. When your furry friend swallows something dangerous or requires surgery, the cost may be higher than any amount you have on hand. Emergency pet surgery typically costs between $2,000 and $5,000, according to WebMD. Your emergency fund could help you cover these urgent costs.
You can offset the cost of big vet bills by buying a pet insurance policy. Accident and illness plans cost $56.30 per month for dogs and $31.94 per month for cats, on average, according to the North American Pet Health Insurance Association.
✅ When you need to make emergency auto repairs
You should have a budget for routine car maintenance, such as oil changes and new tires. However, there are times when you may face a big repair bill you weren't prepared for.
For example, maybe your transmission went out (replacement costs range from $2,900 to $7,100, according to Kelly Blue Book). Or you may have been in a car accident. These are times when it makes sense to turn to your emergency fund.
What you should NOT use your emergency fund for
Here are expenses you shouldn’t use emergency savings for:
❌ Nonessential expenses
When it comes to travel, unnecessary home renovations or impulse purchases, leave your emergency fund alone. These things can be fun, but your emergency cash will disappear if you use it whenever you want to make a big purchase. Consider setting up a sinking fund in a separate savings account to afford these kinds of splurges.
Whether you're building an emergency fund or saving for a particular goal, put it in a high-yield savings account. These accounts can pay up to 10 times the national average savings rate (or more).
❌ Routine costs
You should budget each month for recurring expenses such as groceries, utilities and other monthly bills. If you keep falling short each month, you may need to reevaluate your budget and spending or consider boosting your income.
❌ Debt repayment
If you have debt to pay off, you should create a plan and budget for it using your monthly income. If you use your emergency fund to pay off debt, you could end up going into debt again to cover a sudden large expense.
❌ Investing
Investing your money is a wise way to plan for the future. But it should be part of your monthly budget. Your emergency fund should be reserved for the things you need to pay for right now.
How to avoid dipping into your emergency savings
Having trouble leaving your emergency fund alone? Use these tips to keep your money in your account until you really need it.
- Ask yourself if it's a want or a need: A need is something you can’t live without. For example, you need to have running water, but you don’t need brand-new kitchen appliances.
- Ask yourself if it's urgent: Some things can wait. You may be able to save up for an expense if you can afford to put it off. For example, if your AC goes out in September, you could wait to replace it until it gets hot again.
- Reduce your costs: You may be able to cover some unexpected expenses by making room in your regular budget. Look for ways to save on household costs, reduce your grocery bill and otherwise cut costs to free up more funds for an emergency.
- Apply for assistance: If you're struggling financially, you may qualify for government benefits or community assistance. Consider applying for unemployment benefits, home energy assistance, and other local and federal programs. Don't hesitate to visit local food banks if you need help with groceries -- many don’t have any restrictions on who can use them.
- Boost your income: You may be able to generate some extra cash by picking up a side hustle, taking on a part-time job or selling your unwanted stuff.
- Contact your creditors: If you have debts such as student loans, medical bills or credit cards, reach out to your creditors for payment options, such as deferment or payment plans.
- Keep separate savings accounts for other savings goals: When you're saving money for multiple goals, it can be hard to keep track of your funds if everything is lumped together. Consider using multiple savings accounts to separate your emergency money from money earmarked for other things.
One more thing to keep in mind
When do you use your emergency fund to pay for something, don’t forget to build your savings back up again. These strategies can help you supercharge your savings and rebuild your safety net faster.
