Life doesn’t always go as planned. If you run into tough times, an emergency fund could help you weather the storm.
But while experts recommend saving between three and six months’ worth of living expenses in your emergency fund, they’re not always so clear about when to spend this money.
To help you determine when to dip into your emergency savings, we’ve put together a list of legitimate expenses, along with some that don’t warrant using this account.
4 expenses that justify dipping into your emergency fund
Your emergency fund is just what it sounds like — savings that should only be touched in the event of an emergency. But life can be full of unexpected costs, especially if you’re not carefully tracking your budget.
Although you shouldn’t tap into your account too often, here are four scenarios when it could make sense.
1. Unexpected medical costs
A medical crisis — and the hospital bills that could go with it — is an appropriate time to use your emergency fund. Having this financial cushion could mean the difference between security and debt in case of injury or illness.
According to PBS, 38 million Americans have inadequate health insurance and 44 million have none at all. Even if you have coverage, your medical bills might add up to more than you expected.
Drawing on your emergency fund could be exactly what you need to get through this difficult time. It’s a good reason to build an emergency fund in the first place.
2. Expenses if you lose your job
One reason experts recommend measuring your emergency fund in terms of monthly living expenses is that it will be there for you if you lose your job.
“A job loss is another instance where you could use your emergency fund,” said Maria Scenna of American Consumer Credit Counseling. “You likely won’t have much (or any) income coming in, and therefore will need to use your emergency fund to pay for your expenses.”
Without an income, you might not have any choice but to draw on your emergency fund. Relying on your savings will be a more cost-effective option in the end than racking up high-interest credit card debt.
Do your best to replenish it once this period of unemployment comes to an end.
3. Urgent home or car repairs
If your roof is leaking or your car’s engine has died, you have no choice but to pay for repairs. In the event of urgent home or car problems, you should feel free to use your emergency savings.
“Things such as a flat tire, car accident, house flooding, and water heater bursting are considered emergencies,” said Kalen Omo of Kalen Omo Financial Coaching. “Emergencies are when events occur that result in something that needs to be addressed immediately, or it will affect your ability to live or perform things you need to survive.”
That said, you should plan for some home and car maintenance costs in your regular budget. Even though you can’t predict when you’ll need to fix something in your home, for instance, chances are something will require work eventually.
As a home or car owner, it’s savvy to plan for some expenses so that you don’t have to drain your emergency fund when they inevitably come up. But if you run into a true crisis, that’s why your fund is there.
4. Family emergencies
Finally, a family emergency is another legitimate reason to borrow from your emergency savings. Maybe you need to pay for a parent’s medical bill or help a grandparent move.
You’ll also need savings to get you through a tough time such as the death of a family member, in which you might need to fly across the country or help with funeral expenses.
It’s not enjoyable to consider these eventualities, but it’s still important to prepare for them. With no emergency fund on which to fall back, a stressful time like this could become more overwhelming.
4 costs you shouldn’t pay for with an emergency fund
Once you’ve built your emergency fund, you might feel like it’s sitting there, collecting dust (and a little bit of interest) in the bank. But that doesn’t mean you should draw on it whenever you want to spend a little extra.
After all, an emergency fund is about covering needs, not wants. If you’re thinking of using emergency savings for any of these four expenses, think again.
1. Shopping or vacations
“People shouldn’t use their emergency funds for vacations or leisure activities,” said Levi Sanchez, financial planner and co-founder of Millennial Wealth. “It’s meant to provide a buffer against unexpected expenses, not to be used towards variable or controlled expenses.”
It’s a good idea to save for a new wardrobe or a trip to the Bahamas, but you should do so in a separate savings account. If you bank online, it’s easy to open multiple accounts and earmark them for different purposes.
You might transfer a small amount from each paycheck until you hit your savings goal. But steer clear of the account labeled “emergencies,” no matter how much you feel you “need” to be sipping pina coladas on a tropical beach in January.
2. Holiday gifts
Holiday expenses can add up. According to the National Retail Federation, the average American was expected to spend over $965 on holiday gifts for friends and family in 2017.
Even though these expenses are unusual, they’re not unpredictable, so they don’t justify using your emergency savings.
“Predictable annual expenses, regardless if they are costly, should not come out of your emergency fund,” said Jill Caponera, consumer savings expert at Promocodes.com. “These types of predictable expenses should be budgeted and saved up for accordingly as to avoid running up a credit card bill and acquiring added interest costs, or tapping into your monthly rent or mortgage payment money.”
Prepare for holiday spending in your regular budget so you’re not tempted to spend from your emergency fund.
3. Starting a business
Although the internet makes starting a business easier (and cheaper) than ever, there are still startup costs.
Throwing caution to the wind to start your venture might sound romantic, but it’s not financially savvy. This kind of undertaking practically demands that you have a solid emergency fund on which to fall back.
Instead of draining your emergency fund to pursue your dream of entrepreneurship, consider waiting until you have more in another savings account. If it makes financial sense, you might also take out a low-rate personal loan.
4. Student loans
We love empowering you to pay your student loans as fast as possible, but not at the expense of threatening your financial stability.
Even if you’re making extra payments on your student loans, you should still focus on building an emergency fund, just in case. Once you’ve built a solid base, you can divert any extra money toward your student loan balance and chip away at it over time.
Avoid draining your emergency fund unless necessary
If you take away one theme from this list, let it be this: You should only spend money from your emergency fund when it’s necessary.
If your fund is sitting there, it might be tempting to spend it on nonessentials. Instead, consider yourself lucky that no major emergencies have come up.
Your emergency fund is meant to be a buffer between you and debt in times of crisis. It will give you peace of mind since you know you’re financially prepared for whatever life throws at you.
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