3 Questions to Ask Before Using Your Emergency Fund
Stay on budget and work the Baby Steps long enough, and you’ll understand the power of building your emergency fund.
After all, stuff happens. And an emergency fund offers peace of mind when the circumstances of life get a bit—or a lot—chaotic.
Because of your hard work, you might be sitting on a hot $1,000—or upwards of $15,000—ready whenever you need it. Sounds good, right? And it is!
But here’s the dilemma: An emergency fund piling up in the bank and sitting month after month can start to feel less like security and more like a bonus. The lines between emergency needs and urgent wants can begin to blur a bit. We’ve all be there!
So today we’re offering a litmus test of sorts: Three questions you can ask to determine if your stated emergency actually warrants a visit to the emergency fund. We’ll also talk about a few quick fixes to clear up any emergency fund confusion in the future.
Three Questions to Ask Before Using Your Emergency Fund
As a general rule, true emergencies catch us off guard, require action, and don’t allow much response time. Those are the moments your emergency fund was made for. Here’s how you can tell if your current situation measures up:
1. Is it unexpected?
Every year it’s the same: Summer always follows spring. Still, somehow in the middle of covering the extra costs of St. Patrick’s Day and Easter celebrations, we might forget the approach of a rather important seasonal expense—summer vacation. Come the end of May, the calm of a beach, adventure of the mountains, or glory of a national park will be calling your name. But does your sudden desire for a getaway qualify as “unexpected”?
No! You knew it was coming.
The same is true in other areas of our financial lives. Some bills, home repairs, and special events are predictable while others aren’t. And let’s be honest, even predictable expenses are easy to overlook when we’re focused on the needs of today.
To answer the question, “Is it unexpected?” you might want to take a step back and also ask: “Is the situation a forgot-to-save-for-vacation conundrum or a tree-fell-on-my-car catastrophe?”
These things are usually unexpected:
- Job loss
- Storm damage to your home
- Car accident repairs
- Emergency medical expenses
These things should be expected:
- Back-to-school shopping
- Basic home or car repair
- Routine doctor’s visits
Find yourself in a tough spot with a not-so-unexpected emergency?
Today’s quick fix: See if you can cover the costs by moving things around in your monthly budget.
Your fix for the future: Set up sinking funds in EveryDollar to save money for irregular and overlooked expenses.
2. Is it absolutely necessary?
The differences between needs and wants seem like a pretty clear distinction on paper. Take those same needs and wants off the paper, and in real life, feelings can get in the way.
Imagine this: You agree to host out-of-town guests for the weekend. What starts as a well-meaning attempt to be welcoming can easily morph into feeling like you need to redo the guest bedroom and the bathroom as well as the closet that goes with it!
And as soon as we look at something that’s really a want and call it a need, we basically give ourselves permission to go crazy. Can’t you just see the spirited “Oprah of your mind” pointing and shouting, “You get a new piece of furniture! And you get a new piece of furniture! Every room in the house gets a new piece of furniture!”
Of course, buying stuff you want is totally awesome, as long as you can afford it. To be clear, affording something means you can pay for it without going into debt, touching your emergency fund, or derailing your long-term money goals.
To decide, once and for all, if your “emergency” merits dipping into your emergency fund, write it out on paper. Take the emotion out of the equation and simply write out what you’re considering and how much it will cost you.
Clarity will appear when you look over your notes and think: Am I stealing from my needs to pay for my wants?
These things are considered needs:
- Loss of reliable transportation
- Higher-than-anticipated tax bill
- Unexpected travel in time of family crisis
These things are just wants:
- Nicer, newer car
- Latest iPhone or technology gadget
- Last-minute vacation opportunity
Today’s quick fix: Grab your sheet of paper and write the word “WANT” at the top. Go ahead and own it so maybe one day, with proper budgeting, you can actually own it.
Your fix for the future: Find ways to afford your wants within the monthly budget. You can save over time, research options to cut costs, or shift your priorities in EveryDollar.
3. Is it urgent?
Ever spend time with a toddler? They’re a funny crew. They’re also pretty demanding. When a toddler wants their favorite stuffed animal, they want it now. As soon as they feel a hint of hunger, they assume there should be immediate food in their mouth.
In the midst of this toddler tantrum, a smart adult will stay calm. Adults know something the little ones don’t: they’ll survive.
Yep, they’ll be okay even if they don’t find the teddy bear right this second. And there’s plenty to be gained from a healthy dose of patience: “Yes, I can see that you’re hungry. Dinner will be ready in 15 minutes, so we’re not going to have a snack right now.”
On the other hand, hang with a potty-training toddler and you’ll learn quickly that when they say they’ve gotta go, there’s no time to waste. You could challenge a professional athlete to a race to the restroom and win!
In toddlers, a sense of urgency is formed out of strong desire. We could say the same of us adults when it comes to money. The more we hope to have or do something, the more urgent it seems.
To know objectively if your circumstances are urgent, put yourself in the role of a toddler. Do your requests sound more like a toddler’s tantrum or a sincere call for help?
These things are probably urgent:
- AC going out in the middle of summer
- Expedited, out-of-state move
These things can probably wait:
- The sale of the century at your favorite store
- A second pair of designer sunglasses
Find yourself tempted to splurge on non-urgent wants?
Today’s quick fix: Practice the art of patience. See how it feels to wait out a purchase.
Your fix for the future: Build fun-money into your monthly budget that’s specifically for you to spend however and whenever you please. Next time the mood strikes, you can use cash—and not your emergency fund—to buy your prize.
Here’s Why You Don’t Want to Wipe Out Your Emergency Fund for a Nonemergency
It’s safe to say we want you to stay far, far away from the emergency fund unless you just can’t help it.
Reminder: Always ask yourself these questions:
- Is it unexpected?
- Is it absolutely necessary?
- Is it urgent?
You’re going to want at least two confident nods of the head in reply before you tap into your emergency savings.
By saving your emergency fund for real, tested emergencies, you protect your family and your money for the long haul.