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What Should I Use An Emergency Fund For?

By Kim Studdard
April 3, 2018

Your car breaks down and the mechanic tells you it will cost $1,000 to repair. You need your car to get to work so you have no choice. You fork over the money.

Indeed, emergencies happen. This is why it’s important to have an emergency fund, which gives you a cash cushion to pay for life’s unfortunate events. To back up a bit, your emergency fund should only be used for those events that truly disrupt your way of life, such as your car breaking down or an unexpected medical bill.

But, what if something pops up and you’re not sure whether to use your emergency fund? To help you determine what’s actually an emergency, we’ve compiled a list of reasons that warrant dipping into your emergency fund. Take a look:

5 Reasons to Use Your Emergency Fund

1. Medical Emergency

While many people have health insurance, sometimes it doesn’t cover all of the medical expenses that might crop up if you get unexpectedly sick or need surgery. If hit with these types of medical bills, an emergency fund can keep you from going into debt.

2. Car Repairs

As highlighted above, fixing a broken down car can be expensive. And, even when you’re taking care of your car with regular maintenance checks, something can still go wrong. For example, a tire can blow out or your transmission may start leaking. If you have an emergency fund, you can use that money to pay for your repairs and get back on the road.

3. Home Repairs

Although you probably know that being a homeowner requires spending money to maintain your house, a major repair is never a welcome event. When you need to replace a water heater, fix broken windows, or even replace your roof, you’ll be thanking your lucky stars for your emergency fund.

4. Job Loss

If you ever get laid off from your job, your emergency fund is your best bet for staying afloat while you look for a new job. A fully funded emergency fund[a] can help you pay your bills for months while you’re job-hunting. It can also keep you from racking up credit card debt.

5. Family Emergency

No one expects to help pay for other family members’ expenses, but it does happen. Your mom or dad may need help covering their medical bills, or maybe they can’t afford to pay for a home repair. If you need to help, an emergency fund will be a great asset to you. You’ll be able to chip in without stress and help out your aging parents – all because you had the foresight to save up for unexpected expenses.

5 Instances When You Should Not Use Your Emergency Fund

While there are indeed reasons to use your emergency fund, there are other situations when you should leave your fund untouched. For these expenses and goals, it’s best that you use another type of savings fund. Take a look at 5 common goals that smart savers plan for:

1. Vacations

Vacations can be expensive but they are certainly not emergencies. Instead, save up for vacations in a separate account dedicated for travel. If you don’t have enough money saved for your dream trip to the Caribbean, or you can’t carve the funds out of your regular budget, it’s best to hold off and wait until you can afford to travel.

2. Holidays

Thanksgiving and year-end holiday expenses can add up fast. Between buying gifts and decorations, hosting gatherings and more, holidays can take a major bite out of your budget. We get it: it’s easy to use your emergency fund to cover these costs. But, you’ll need to just say “no.” Instead, save monthly for these expenses in a separate bank account or even a jar on the kitchen counter.

3. Annual Expenses

Annual expenses are fixed expenses that you pay once a year versus once a month. For example, your car insurance, property tax bill, and annual medical exam fees are usually recurring yearly expenses. If you know how much your annual expenses cost, there is no reason you should use cash from your emergency fund to pay for them. To keep annual expenses from creeping up on you, you can instead write the due date and amount due on a calendar. This way you’ll know how much you need to save before the bills are due.

4. Starting a Business

Starting a business is exciting, but it can also be costly. However, this doesn’t mean you should  tap into your emergency fund to help pay for business expenses. Your business isn’t guaranteed, and it may not recoup the money you invest. Instead, prepare ahead of time by stashing money away to launch your business. You can even start a side hustle with no start-ups costs in order to raise and save money for your future company!

5. Miscellaneous Expenses

Shopping, nights out, and happy hours with friends aren’t excuses to use your emergency fund. These expenses are often spontaneous and it’s important that you don’t go overboard and overspend. With that said, if you don’t have the money to pay for these splurges, it’s time to curb your spending or start a fund specifically for fun.

Final Words of Advice

Now that you have a better idea of what an emergency fund should be used for, it’s time that you start building it up so that you’ll be prepared if hit by a true emergency. Remember: the sooner you start saving money, the better off you’ll be!


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