When Should You Use Your Emergency Fund?

So many personal finance experts (us included!) preach about the importance of having an emergency fund. We do this for a reason! A recent survey found more than two-thirds of Americans worry that their emergency savings would not even last them one month. But sometimes, we focus so much on the why and how of building an emergency fund that guidance about how and when to use your emergency fund falls by the wayside. 

What is the purpose of an emergency fund?

The main purpose of an emergency fund is to help cover unexpected expenses without having to take on debt or sell any assets. An emergency fund gives you a financial cushion, security, and flexibility. It can reduce your financial anxiety and increase your options.

When should you use your emergency fund?

In general, you should use your emergency fund when you have unexpected expenses that you would otherwise need to put on a credit card. Commonly cited examples include: 

• Medical bills

• Car repairs

• Job loss

• Vet bills

• Emergency travel expenses

• Home repairs

But let’s be honest—it’s not that clear-cut. Especially when you are just starting to build your emergency fund, you will likely need to pull from it for non-emergencies. Early on, a lot of expenses will feel unexpected because you aren’t used to planning for them—for example, your annual contacts purchase, new tires for your car, or replacing your eight-year-old Macbook when it finally kicked the bucket. With practice, you can anticipate and save for these expenses, but until you build that financial muscle, you may still use your emergency fund for these types of expenses and that’s ok.

Once you’ve established a solid emergency fund, you might also use your emergency fund for flexibility or opportunities that arise. Here are a few examples:

• You decide to leave a job that’s not right for you and take your time finding a new one

• You get a fantastic professional development opportunity that your company won’t pay for

• You have the chance to fulfill a lifelong goal of seeing your favorite pop star in concert 

Typically, by the time you’ve saved 3-6 months of expenses in your emergency fund, you have learned a thing or two about what you truly value using your money for. You also know the hard work and persistence it takes to build an emergency fund, so you’re less likely to use it for something that is not super important to you.

What should you do after you use your emergency fund?

Whether you’ve dipped into your emergency fund for an unexpected expense or an exciting opportunity, you should make a plan to replace what you withdrew. This likely means that you will need to rearrange your budget for a few months to focus your extra cash on replenishing your emergency fund. 

Final Thoughts

There is no rulebook on how to use your emergency fund and no one (your financial trainer included) is going to police what you do with it. If you keep the purpose of your emergency fund in mind when deciding how to use it, you’ll end up on the right track!

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