Deciding How to Use Your Emergency Fund

We’ve talked before about the importance of creating an emergency fund, but once you have one, what do you use it for? There are lots of different philosophies on what warrants an emergency, so to some extent, you have to answer that for yourself. Here are some ideas to help you think about what really is an emergency.

If you are considering using your emergency fund, then chances are, there’s been an unexpected expense. There are a couple of follow up questions you should ask yourself:

  1. Is the expense necessary? Now, the word ‘necessary’ is up for interpretation.

If your back porch stairs are rotting, most people would say that repair is necessary. But if you don’t use your porch all winter, then the repair might be fine to wait until Spring, when you’ve had a chance to save a bit for it. On the other hand, if your future sister-in-law decides to have her bachelorette party in Bermuda, you might feel like you can’t say no, and therefore that plane ticket and hotel room is also necessary. Is the bachelorette party far enough in the future that you could cut back on some other daily expenses to find money for the trip elsewhere in your budget and avoid using your emergency fund to pay for it? 

  1. Is the payment time sensitive? Again, everyone’s definition of time sensitive will vary a bit, but decide what that means to you and do your best to stick to it.

Something that might be time sensitive but not necessary could be a sale that ends Saturday for a new washer-dryer set you had been thinking about. In order to take advantage of the sale, the purchase is time sensitive, but your current washer and dryer still work, so it wouldn’t be necessary.

If an expense is both necessary and time sensitive, that’s the time that emergency fund is meant for. If your car needs $1500 in repairs in order to run again, and you don’t have an alternative way to get to work, then that would be an example of an expense that is both necessary and time sensitive.

If the expense is only necessary or time sensitive, but not both, then you can probably find another way to pay for the expense, either by adjusting your budget to accommodate or by saving over time for it. Get creative – you worked hard to build that emergency fund!