When Your Emergency Fund Screams to You: “Use Me!”

Every personal finance writer I have ever read says the same thing as I do when it comes to saving up an emergency fund. That is do it and do it as soon as you possibly can! That’s because of a host of reasons and none are bigger than the peace of mind you get from knowing that you have a nest egg ready just in case something “bad” happens to you.

Fraying rope representing an emergency to use your emergency fund

An emergency fund is the money you set aside in an easily accessible savings account to help you comfortably manage urgent, essential expenses during unlikely circumstances. Since you never know what life can throw at you, experts commonly recommend setting aside at least three to six months’ worth of your typical monthly expenses and necessary costs. Or at the very least have a starter emergency fund of say $500 or $1,000 which you are in the process of building.

But whatever does happen, there comes a time when you simply must draw upon that money even though you never really want to do it. It just may be a matter of survival.

So What Kind of Emergency Means You Must Draw from It?

Here’s a hint: drawing money from your emergency fund doesn’t mean you get to fulfill your wish list.

It can be so tempting to tap into your emergency savings for something on your wish list like a new TV or taking a nice vacation. But it’s important to remember that emergency funds are for emergencies, not the things you should otherwise budget or save for. Think of your emergency fund as your ace in the hole, a secret weapon to get you through some really trying times.

The reasons you take that money from that sacred account ultimately depends on your own personal situation and financial needs, but here is a list of what is generally known to fall into the categories that make the cut here. If you have a fund, and of course you should have one, there will come that time to use it, so don’t ignore it! Here are some situations that definitely require you to make the hard decisions with emergency fund money!

Job Loss

Number one on the list is this one, sudden job loss. Many people experienced this just recently during the pandemic and it caught them off guard. We generally don’t have situations where massive job losses occur at once and literally everyone is in the position of sitting at home watching the bills pile up without a job in sight. But that was what most of 2020 and 2021 were like. The lack of emergency funds or the time that stretched causing those funds to disappear launched the federal stimulus monies to be issued. Those funds were “emergency” funds that helped tremendously for many, but they are not to be counted on as a backup plan every time something bad happens. Defending against those bad times is your job not Uncle Sam’s.

Though the idea can be unsettling, layoffs and furloughs aren’t uncommon and that is even when the economy is in tip-top shape. It pays to be prepared with an emergency fund that can cover the three to six months of essential expenses while in between jobs and the pandemic certainly proved that point.

You Lose Your Job, But What About Unemployment Benefits?

If you’re unemployed (through no fault of your own), you may be eligible for unemployment insurance benefits. Take a close look at your finances and ask yourself if you can get by on just unemployment benefits alone.

Can you cut back on your expenses and make it work? If not, you may be able to combine the unemployment benefit with some of your emergency funds to cover the difference. That’s what having that money can do and why it is there for you.

Medical Emergency

Even if you have a basic health insurance plan in place, sometimes a medical emergency can shock both you and your wallet. What do you do when that happens?

No matter how healthy you and your family are, an accident, appendicitis, or even a dental emergency like a root canal can give you very unpleasant, unexpected bills and that’s especially true if you have high health insurance deductibles.

If you have good credit, perhaps you can tack on those bills to your credit card, but ultimately you will still be responsible to pay for it. Your emergency fund can help either with a monthly payment or taking care of all of it to avoid interest payments over a long period after such a situation…if you have the funds in place.

Unexpected Car Repairs

Every driver has experienced car troubles at some point in their driving life. There’s nothing worse, especially if you are driving an older vehicle, than putting the key into the ignition and hoping and praying that your car will start. Sometimes, it just doesn’t.

But whether it’s the engine, a leaky radiator, or your parked car got sideswiped by another vehicle, your car problems are usually unexpected and expensive to fix.

For accidents, no matter who’s at fault, an emergency fund can cover your car insurance deductible and can even help handle repairs.

If you have a newer car, be sure to check if it’s still under warranty as the repair might be covered. Otherwise, your emergency fund can help cover the costs of any unexpected car repairs.

Unexpected Home Repairs

The same approach should be taken with unanticipated home repairs. Houses need maintenance and home appliances usually have to be replaced over time. If you need to make a surprise home repair like fixing a faulty hot water heater or problematic air conditioning system in the heat of summer, you can use your emergency funds and solve the problem quickly when necessary.

Of course, if you have homeowners insurance it can cover many other items about a repair, but even then your homeowner’s deductible may garner some support from your emergency funds.

When it comes to both your car and home, some maintenance and repairs are to be expected. That’s why sinking funds are important for the things you can reasonably expect. Meanwhile your emergency fund can cover things you don’t expect. If you don’t have sinking funds yet, your emergency fund will need to cover it all.

What If You Have No Emergency Funds?

Even when you don’t have an emergency fund, you still have options. You can always cut back on discretionary spending and establish a new lower budget. Can you manage that way?

If you can, consider opening up a 0% intro APR credit card. That can make a large unexpected expense manageable and not wipe out all of your emergency funds at once.

Final Thoughts

Even though you have heard about emergency funds over and over again, there are still so many people who don’t have one. According to a 2021 survey by Bankrate, 25% of American survey respondents indicated that they have no emergency savings at all; up from 21% who said they didn’t have any in 2020. And even more so, 51% of American respondents have less than 3 months of funds saved. That’s pretty scary.

Think of an emergency fund as your secret weapon against whatever life throws at you financially and not as a savings account to tap into when you’ve got a pricey item on your wish list.

If you have to tap into your emergency fund, just be sure to rebuild it as soon as possible. Being prepared definitely helps minimize the pain that emergencies can cause you and your wallet. It can’t hurt to be prepared.

Do you have emergency funds ready to use if needed? Did you have to use them during the pandemic and if so, how did you manage to rebuild your funds? How much do you feel you need to save in your emergency fund to be comfortable?

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