When to Dip into Your Emergency Fund

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So, you feel like you are finally getting your finances under control, and you are even going the extra mile to create an emergency fund. However, as you begin depositing your hard-earned money into that separate bank account, you may find it increasingly difficult to resist spending it. After all, simply rewriting the label could easily turn it into your vacation fund. But don’t do that! Expenses often pile up when you least expect it, which is why it is so important to be prepared. Try to keep out of your emergency fund unless it involves these reasons:

Housing Expenses—If you own your home, you know how expensive repairs and other costs can be. The appliances you use every day often have complications that need to be fixed immediately, especially when it involves plumbing, heating, or air conditioning. Minor problems will run about $200, so try to pay as much of it as possible without using your emergency fund. But after all, emergency funds are meant to be used in emergencies…you do not want to be without a toilet because you’d rather not look for plumbers in Edmonton.

Health and Medical—There’s no telling when you are going to need the assistance of a hospital or doctor in your near future. Accidents happen, sickness goes around, and sometimes we just need a health boost. Even a minor hospital visit usually comes with an overwhelming medical bill attached to it. If you have a health problem that needs to be remedied, don’t guilt yourself into putting it aside. Go with your gut; if you feel like you need to get more tests run, do it. You may catch a problem before it gets too big, and save yourself money and stress in the long run.

Reduce Debt—Your emergency fund should not be a backup for when you overspend, except in some circumstances. If your debt has accrued an expensive monthly or yearly fee, you will want to pay off that debt as fast as possible. Likewise, if you risk missing an upcoming payment on a loan, it will most likely save you money if you use a small portion of your emergency fund. This way, you will prevent fines from being tacked onto your account, keep from lowering your credit score, and avoid your rate going up.

Vehicle Costs—Unless your vehicle is brand new and under full warranty, chances are you will need to have something repaired or replaced in the next 5 years. Tires are one of those car parts that require replacement about every 40,000 miles or so, and unfortunately, they can run up to $800 altogether to replace. If you find yourself in a hit-and-run, you might also end up with damage that you need to pay out of pocket for. Your emergency fund can help to cover those costs and keep your car running smoothly.

Lost Job—No one wants to think about losing their job, but it’s a common circumstance in today’s economy. An emergency fund is there to help cover all of your monthly payments and grocery needs while you go through the process of finding a new job. An ideal emergency fund will be enough to support at least six months of no income, but even a few months will make a big difference.

In times of stress or crisis, money should be the last thing you need to worry about. Though it’s tempting to use your emergency money on something exciting like a Caribbean cruise, it’s wise to keep it as a backup. You never know when you will be in a situation where you desperately need financial support.

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Nina Hiatt

Nina Hiatt enjoys writing and reading all things finances. When she’s not working hard to save up retirement money, she’s fixing up her house with Always Plumbing & Heating.

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