Knowing when to use the Emergency Fund

There has never been a more important time for people to have an emergency fund than there is in today’s economy. Financial experts routinely advise people to save money, and to save until their emergency fund has at least enough money so that if you were to lose your job, you could live on your emergency fund for at least six months. Unfortunately, most people are living so close to the vest that they can’t save for that emergency fund.

Having an emergency fund is a great idea, and it can be a live saver for people if they fall on hard financial times. Unfortunately, most people have no idea what to use the emergency fund for or when it might be appropriate to use it. Here are some things to consider.


*Loss of a job –

An emergency fund is the cushioning that people need to have in order to be able to survive a job loss. You don’t have any way of knowing how long it might take you to find the job in the first place, and if for some reason, you aren’t able to collect unemployment after losing your job, unless you have that emergency fund, you wouldn’t have a way to survive and support yourself, much less a family. You also need to think about how you would pay your credit card bills if you were unemployed. Bills still accrue, and your financial situation will get continually worse if you don’t keep up with your payments.

*To continue paying for insurance premiums –

If you were to lose your job, you might still be eligible for insurance under COBRA, but you would still have to pay for your premiums yourself. After the period of COBRA eligibility expires, you will still want to have some sort of health insurance. The premiums you pay for your health insurance will protect you so that you aren’t forced to shell out a huge amount of money in case of a medical emergency.

*For food –

It might be considered acceptable to use an emergency fund if you were in dire straights and needed to purchase food for your family. That doesn’t mean that because you need to feed your family, that it’s okay to order out or go out to eat. You can use it to purchase groceries as long as you are careful about what you are buying. Don’t waste money on things like junk foods, soft drinks or other non-nutritious foods. If the money has to last a while, stick to the basics.

*Medical emergencies –

Another reason for which it would be justifiable to use the emergency fund is if you or someone in your family were to have a medical emergency where you needed to pay for their medical care. You can’t neglect these sorts of situations, and you certainly don’t want to destroy your credit rating because you can’t pay for some urgent or emergent medical care.

*Rent or house payments –

If for some reason you are short on money, out of work or faced with the inability to pay your rent or house payment, you wouldn’t want to risk eviction or foreclosure or face the prospect of being homeless.  Another appropriate use of an emergency fund is to pay for your housing expenses. Make sure that as part of your savings plan, you consider the possibility that you might need to use the emergency fund for housing expenses.

*Utilities –

If you are out of work or faced with an inordinately high utility bill that you can’t afford to pay, it might be necessary to dip into the emergency fund in order to keep the utilities on. This would be especially important during the extreme hot weather of summer when having air conditioning is necessary for health reasons. It might also be important during winter months when the weather gets so cold that it is necessary to use heat. You can’t live without heat because it isn’t healthy, but not having heat could turn into a real serious disaster if your pipes freeze and burst.

*Car repairs-

If you use your car in order to get to work and there is no other means by which to get to work, it might be necessary to dip into an emergency fund to cover car repairs so that you are able to get to work. You should only dip into this fund if you are faced with a situation where the car isn’t safe to drive without the repairs, or if by not addressing them immediately, you would risk having to pay more because of additional damage by continuing to use the car.

An emergency fund is just that. It is designed to provide you with money in urgent situations where for reasons such as unexpected emergencies. It is a cushion that can get you through times of job loss, medical emergencies, the need to pay for utilities for health and the safety of your home, or to provide the family with food. Bear in mind, however, that when dipping into your emergency fund for whatever the reason, you should be ready to replenish whatever you remove. By adhering to that philosophy, you will always have an emergency fund that you can rely on when you find yourself in a desperate financial emergency.