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You’ve heard all about needing an emergency fund. What about using it? When should you use your emergency fund?
There are plenty of tips on how to save up for an emergency. There are all sorts of posts about the importance of an emergency fund. What people don’t tell us is when the emergency fund is something to use.
The emergency fund holds between three and six months of your income at least. It’s designed to help you deal with emergencies that occur, and that includes if you lose your job and need time finding a new one. That means you don’t want to spend the emergency fund on just anything, but you do want to use it wisely.
Use your emergency fund when you lose your job
Let’s start with the most obvious time—and the reason you have the emergency fund* in the first place. If you’ve lost your job, you need money to help while you look for work. If you’re fortunate, you have a severance package that will also help, but not everyone does. And some businesses won’t pay out everything they promise knowing that you likely don’t have the money to sue them!
So, if you’re running out of money while you look for a new job, dip into that emergency fund. Of course, you want to cut back your expenses as much as possible. Try to stick to just the necessities while you look for a new job.
MORE: 4 questions to ask yourself before dipping into your emergency fund
When you have a sudden payment you need to make
There are some expenses that come up that are necessary but not planned. These are things like car repairs, boiler repairs, and medical expenses. To be prepared for the said medical expenses, you can read more on who qualifies for Medicare.
This doesn’t include regular maintenance. You should have a sinking funds account* for the regular maintenance to help prevent major issues.
Just recently, I found out that I needed new brake pads. I wasn’t prepared for that, so I had to dip into my emergency fund to pay it off. I will likely need a new transmission soon, and that costs less than a whole new car, so I’ll be looking at that.
You’re not supposed to use the emergency fund on items that you just want. Make them items that you need to live or get to work or something like that. Be honest with yourself about this. You can miss out on a vacation, but you can’t lose your car.
When it comes to medical expenses, only use your emergency fund on necessary expenses. It isn’t there for any cosmetic surgery. It’s there for dealing with the ER trips and medical emergencies.
Use your emergency fund if your income drops
You may not lose your job. You may be like me where you’re self-employed. Maybe you lose a client, or maybe those Google updates at the end of 2023 and in March 2024 really did a number on your income. Either way, you’re suddenly facing an income dip, and you need to find a way to build that back up.
You can’t get your income back overnight. Don’t panic. This is what your emergency fund is for. You can use that to help bridge the gap until you replace the income. That can take time, so do try to cut back on luxuries while you do that.
MORE: 3 things to do with your tax refund
When have you had to tap into your emergency fund it? When have you had to stop yourself? Share your times in the comments below.
