Financial Tips

When is it okay to use your emergency funds?

As the definition implies, emergency cases happen because unexpected or life-threatening events may surface anytime. You didn’t intend for these unlikely events to happen, but they just happen. No one likes getting into an accident or finding themselves caught in the middle of a raging storm or earthquake. For these extreme cases, you’d better have an emergency first aid kit available or an emergency line to call for help. These unnecessary events in life occur, and it’s always good to be prepared.

There’s this wise adage that tells you to always save for the rainy days because you cannot really predict the length of time you would suffer from the setbacks. Try to shore up at least three months’ worth of savings to cover expenses should your income suddenly cease. It might be a good idea to seek a financial advisor who can assist you in planning your finances. Emergency funds are a necessary allotment.

So, you’ve put in the effort and built up your emergency fund. You’ve learned to determine your needs versus your wants and have prudently budgeted your expenses. But, when is it’s okay to make use of your emergency funds? Can the emergency be handled with minimal impact to your finances?

 Remember that you’ve worked so hard to set aside something to cover for emergency cases. Perhaps, we should look at some guidelines to determine when is it okay to use emergency funds.

Determine the exact nature of the emergency

Is it an emergency if you lose your mobile phone? Or is it something more serious like providing assistance for a sick relative? Let’s review if the emergency is real or if it can be handled by other means.

It took you by surprise

Your company had laid off workers and you were one of those unlucky workers. 

This is an economic struggle since you have no source of income for you to settle your bills. If this happens, you can dip into the fund and replenish it as soon as you are able to land another job.

Should a natural disaster occur like an earthquake or a hurricane, then that particular emergency really caught you off guard.

These unexpected life events or emergencies should serve as your driving force to have contingencies in place. You will never know the time, place, and date of these emergencies, of course.

Saving for your child’s tuition or planning a vacation can be budgeted accordingly. Health care expenses can also be managed through medical insurance or other financial instruments. Babies take nine months to come out, so there’s your preparatory period right there. But, a vehicular accident or an unplanned bone fracture may force you to take out your savings.

It is something that you have to do and need to do

Your car battery needs a replacement. There’s an insect plague destroying your house. The contractor discovers a faulty structure that must be addressed immediately or else the entire edifice will suffer. For cases like these—when lives may be put at risk or your daily routine may suffer a major setback—you may consider using a portion of your emergency fund to cover such expenses.

But, if your fridge still works even if it’s been struggling to keep your items chilled, or the washer and dryer seem to be struggling with the growing laundry load, hold off a bit. If those appliances suddenly break down, you can purchase the replacement or end up spending more on takeout food or visiting your nearby laundromat. But, if you can be patient with the inconvenience, then wait for a sale to happen so you can save more.

It brings with it a real sense of urgency

Let’s say, you and your partner have planned out the birth of your child. Suddenly, the baby is born prematurely. I doubt if your baby can wait to receive the proper care and attention, so the needs of this baby must be a top priority!

There are additional expenses incurred at the hospital, especially for premature babies. The nice child seat for the car or stylish bassinet can wait. Right at this very moment, your emergency fund needs to cover the best care available for your newborn.

If the situation requires immediate attention and it cannot wait, then go ahead and use your emergency funds. Immediate intervention for broken bones or other medical procedures qualifies for the use of the fund. If the condition can wait, then save up for it by cutting down on unnecessary expenses. Appliances that are still usable fall into that “can wait” category.

What are some other options?

Don’t despair if the need arises to avail of the emergency fund. There are other alternatives to consider even if it may be a major emergency. The logical solution is to forego a luxury purchase and saving where you can.

Credit may be an option, but try to follow the guidelines below so you won’t  add to the emergency at hand:

  • Borrow what is necessary to cover the emergency expense. Do not get more than what you actually need even if the credit approval may be drawn from your home equity or just from the credit card company.
  • Settle the balance owed as quickly as possible. You are losing money by just paying the interest. Should borrowing on your credit card be a necessary channel, try to budget a fast pay-down. The period given is usually six months for large amounts.

Emergencies are bound to happen. Proper preparation comes with astute planning. The emergency fund is considered a fallback. To keep your car running efficiently, periodic maintenance services are highly recommended. Try to save up for the birth of your child or a scheduled surgery that needs to be done in the future. When you are able to plan ahead, then you don’t have to use your emergency funds. But, when the emergency happens, then that’s the logical reason why the emergency fund is advised in the first place.


Leave a Reply

Your email address will not be published. Required fields are marked *