You’re emergency fund may be in a savings account to which you make regular deposits. When you have enough money to live on for three months should you suddenly lose your job, you have a sense of financial security. Should the emergency fund only exist for the purpose of covering living expenses should you become unemployed?
You’re confronted with some unexpected expenses; your car needs repair, your kid needs braces and the hospital has sent you a bill for that outpatient procedure your doctor ordered for you last month. Your regular income simply won’t cover all the costs at one time.
Should you dip into the emergency fund?
Knowing when to use your emergency money isn’t as clear cut as it would seem. You’ve designated those funds as a safeguard against unemployment. If you use them to meet unexpected expenses, you reduce the balance, thus reducing your safety net.
The first question you should ask yourself is can you make up the difference quickly? Is this a temporary setback, a small loan to yourself that can be repaid quickly, or will it take you several months to regain the balance?
It’s tempting to raid a savings account when unexpected expenses disrupt your budget. It’s pertains to the old adage of saving for a rainy day, and you tell yourself, “Well, it’s raining. And this is why I saved the money.”
If you’ve designated your emergency fund as monies to prevent added debt, that is, to meet unexpected expenses, then certainly medical bills and auto repair may warrant the use of those monies. You don’t expect to regain the balance quickly, and will feed the account without disrupting your regular budget.
If that emergency fund is designed to protect you in an unstable job market, and you have no other savings such as a 401k or money market account, you may want to reconsider using that money to pay such bills.
The dentist and the hospital are likely to accept payments if you have good credit. You may be better off using your emergency credit card for the car repair and paying that off in two or three payments.
Keeping your emergency fund intact is an important part of your financial strategy, and shouldn’t be raided for bills that could otherwise be paid off though other methods.
Unexpected expenses come in many forms, though, and unemployment is just such an instance when the emergency fund is a necessity. Before you start withdrawing money though, assess your budget, take account of all your other resources and apply for your unemployment benefits.
Use your emergency fund when absolutely necessary and push the boundaries of your budgeting skills. It is raining now, and this is why you saved the money.