Knowing when to use the Emergency Fund

Emergency funds are dwindling these days, as more and more people need to dip into them for essential needs. The trick is to know when the need is really essential. The truth is that more often than not, using the emergency fund is easier and faster than building it back up again. Emergency funds, 401k plans, and IRAs should be protected if at all possible.

Certainly unexpected medical expenses, mortgage payments, and taxes are all emergency situations that may warrant using your savings. However, it isn’t always necessary to use up your emergency fund even in these situations.

Medical expenses, not covered by insurance, can often be paid through installments, as can taxes. By dealing directly with the health provider or, in the case of taxes, with the state, local, or federal government, you can often come to some arrangement, and a payment plan. The same holds true of most utility companies.

If you have a household or car repair emergency, it is sometimes more beneficial to take out a short term loan that you can pay back quickly, once you have the cash, and yet not touch your reserve.

Of course, today, you may have no choice but to dip into your emergency fund. If you have been out of work for a long time, or are on medical leave due to illness or injury, it may take some time for unemployment to kick in, or insurance payments to reach you. You may very well need this money to see you through. If at all possible, however, once things are back on track, you should start to replenish your savings for future emergencies.

If it comes down to either using the emergency fund or losing your house, then certainly you need to use it. Hopefully, this will cover a temporary problem, and you can soon start adding to your fund.

Emergency funds should not be used for vacations, household furnishings, or a new car, but you may need to use them for vital needs such as a new furnace, water heater, or other necessity.

It is really difficult in this day and age to determine what is an emergency and what isn’t, but in the long run, unless you have a large amount in your backup fund, you should use it as a last resort. Money is hard to come by, and even more difficult to keep once you have accumulated it.