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Your Emergency Fund Is Crucial. Use Only in Financial Emergencies
Updated: June 27, 2023 |
Taylor Kovar, CFP

Don’t Waste Your Emergency Money: Top Questions to Consider in a Crisis

It’s a given in the world of personal finance that you’re not really planning unless you’re also planning for the unexpected. In today’s uncertain economic climate, having a solid emergency fund is more important than ever. This emergency money can provide you with a financial safety net when things go south unexpectedly, helping you to cover sudden expenses and avoid falling into a debt spiral.

However, before you tap into your emergency savings, it’s wise to ask yourself some important questions to ensure that you’re making the best use of your money. In particular, you need to determine whether you’re facing a real crisis or are maybe just panicking over something that isn’t really a big deal.

The Importance of Your Emergency Fund

Building and maintaining an emergency fund is one of the most important financial steps you can take; it should be a top priority. Without some emergency savings, you’re automatically at serious risk of falling into serious financial trouble if an unexpected setback crops up in your life. Whether it’s a car that suddenly won’t run, an unexpected medical bill, or losing your job, having an emergency fund provides you with the financial stability and peace of mind that you need to weather the storm.

Building and Maintaining Your Emergency Fund

You can’t predict what’s going to happen, at least not in any kind of detail. When you think about it, this is exactly why it’s important to have a plan in place. Start by setting aside a specific amount of money each month, even if it’s just a small amount to begin with. Over time, your savings will grow and you’ll be better prepared for any unexpected expenses that come your way. It’s also highly recommended to keep your emergency savings in a separate account that’s easily accessible but not too tempting to dip into for non-emergencies.

One of the best ways to build your emergency fund (and, for that matter, any kind of savings) is to “pay yourself first” and automate these transactions. This means setting up an automatic transfer from your checking account to your emergency fund and any other savings accounts you may have each and every month. By doing this, you won’t have to think about it, and your savings will grow without any apparent effort or sacrifice on your part.

Another way to fill out your emergency fund is to cut back on unnecessary expenses. Take a look at your budget and see where you can save a little money without crippling your lifestyle. Maybe you can eat out less or cancel a subscription service that you don’t use. Really, every little bit helps when it comes to building your emergency fund.

The Benefits of an Emergency Fund

Do you keep a spare tire in your car? Chances are that you’ll never need it, but it’s good to know it’s there. Keeping some emergency money stashed away somewhere other than your checking account works in much the same way. Let’s talk about some specific reasons to have an emergency savings account:

First and foremost, it gives you peace of mind. Knowing that you have money set aside to deal with the curveballs life may throw at you truly helps you sleep better at night.

An emergency fund can also help you avoid going into debt. If you don’t have money set aside for emergencies, you may have to rely on credit cards or loans to cover unexpected expenses. This can lead to a cycle of debt that’s hard to break (much harder than building some emergency savings before you really need it).

Finally, an emergency fund can give you the flexibility to make choices that you might not otherwise be able to make. For example, if you have an emergency fund, you may be able to take time off work to care for a sick family member without worrying about how you’ll pay your bills. If an appliance in your home gives up the ghost, you could choose to replace it instead of hoping that a repair will last.


In conclusion, building and maintaining an emergency fund is one of the most important financial steps you can take. By setting aside money each month and keeping it in a separate account, you’ll be better prepared for any unexpected expenses that come your way. Not only will an emergency fund give you peace of mind, but it can also help you avoid going into debt and give you the flexibility to make better choices when you run into trouble.

When to Tap into Your Emergency Fund

Hopefully, the reasons above gave you the answer to a surprisingly common question, namely: “What good is emergency savings if you’re not supposed to touch it?” Having an emergency fund is crucial to your financial stability, and it’s at its most useful if you leave it alone until a real disaster strikes. It’s like having a safety net that can help you get through tough times. However, at some point, bad luck may force you to go to that well. Before you withdraw any money, ask yourself these three questions:

3 Questions to Ask Yourself Before Using Your Emergency Fund

  1. Is this expense truly an emergency? It’s essential to understand the difference between an emergency and a non-emergency expense. An emergency expense is an unexpected cost that you couldn’t have anticipated, like a medical emergency or a sudden job loss. On the other hand, non-emergency expenses are things that you can plan for, like a vacation or a home renovation. It’s crucial to use your emergency fund only for true emergencies.
  2. Can I cover this expense with other funds or resources? Before you wipe out your emergency fund, think about whether there are any other resources you can use to cover the expense. For example, if you have a separate savings account for non-emergency expenses, you can use that money instead of your emergency fund. Or, if the expense is something you can delay, you can take the time to save up for it instead of using your emergency fund. Maybe holding a yard sale or taking a temporary second job is the most appropriate way to get some extra cash.
  3. What will be the long-term impact if I use my emergency fund for this expense? While using your emergency fund for a true emergency can be necessary, it’s important to consider the long-term impact of doing so. If you use up your emergency fund, you’ll need to build it up again, which generally takes time. Additionally, if you’re using your emergency fund for expenses that aren’t urgent, you’ll be depleting your safety net and putting yourself at risk if a real emergency arises.

Emergency vs Non-Emergency Expenses: Knowing the Difference

It’s crucial to distinguish between emergencies and expenses you can delay or forego. While it may be tempting to use your emergency fund for a non-emergency expense, doing so will leave you vulnerable if a true emergency arises. Non-emergency expenses might include things like vacations, home renovations, or other discretionary purchases.

The sky will not fall if you wait another year for a new kitchen or a trip to Disneyland. These expenses should be funded through savings in a different account, like a vacation fund or a home renovation fund. By clearly separating your emergency fund from your other savings accounts, you’ll be able to avoid dipping into your emergency fund for non-emergency expenses.

Remember, your emergency savings are there to help you through unexpected financial hardships. By knowing when to tap into it and when to use other resources, you’ll be able to protect yourself and your finances in the long run.

Maximizing the Benefits of Your Emergency Fund

Having some emergency money ready to hand is an essential part of any financial plan. It provides a safety net for unexpected expenses, such as medical bills, car repairs, or getting laid off. When you think about it, though, once you have built up your emergency fund, there are several ways to make the most of your savings and stretch them further.

How to Stretch Your Emergency Fund Further

  • Shop around: Don’t just settle for the first quote you receive for an emergency expense. Shop around to find the best deals and rates so that you can make your emergency fund go further. For example, if you need to replace your car battery, compare prices at different auto repair shops to find the best deal.
  • Plan ahead: Knowing what expenses you might incur in an emergency can help you plan ahead and avoid overspending. For example, if you live in an area prone to natural disasters like hurricanes or earthquakes, you can plan ahead by purchasing emergency supplies like water, food, and first aid kits before a disaster strikes and prices skyrocket. Additionally, knowing the approximate cost of a new set of tires can help you budget more effectively.
  • Invest your emergency fund: If you have a large emergency fund that you don’t anticipate using any time soon, consider investing it in a low-risk, high-yield account, such as a money market fund or a certificate of deposit (CD). This can help your emergency fund grow over time and provide even more financial security. Just be aware of the potential tradeoff between accessibility and earning interest.

Alternatives to Using Your Emergency Fund

While your emergency fund should be your first line of defense in a crisis, there are other options that you can consider if you need additional financial support:

  • Personal loans: Consider taking out a general-purpose loan to cover unexpected expenses. This can be a good option if you have a decent credit score and aren’t able to cover the entire expense with your emergency fund. However, be aware that personal loans often come with high interest rates and fees.
  • Credit cards: While using your credit card for emergency expenses may not be ideal, it can be a good option as long as you know that you can pay off the balance quickly. Just be sure to avoid high-interest cards and only use this option as a last resort. Some credit cards even offer rewards or cash back for emergency purchases.
  • Community resources: Depending on your situation, there may be community resources available to help you cover emergency expenses. For example, if you are facing a medical emergency, there may be local charities or non-profits that can provide financial assistance or connect you with resources to help cover the costs.

Remember, the key to maximizing the benefits of your emergency fund is to plan ahead, shop around, and consider all of your options before tapping into your savings. By doing so, you can ensure that your emergency fund provides the financial security and peace of mind that you need in times of crisis.

Rebuilding Your Emergency Fund

Having an emergency fund is crucial to financial stability, but sometimes unexpected circumstances arise that require us to dip into it. If you’ve had to tap into your emergency fund, it’s important to prioritize replenishing it as soon as possible. Here are some tips for rebuilding your emergency fund:

Tips for Replenishing Your Emergency Fund After Use

  1. Make a plan: Determine how much you need to save each month in order to rebuild your emergency fund. Look at your income and expenses to see how much you can realistically set aside. Creating a budget that reflects this goal will help you stay on track.
  2. Be disciplined: Stick to your budget and avoid unnecessary expenses while you work on rebuilding your emergency fund. This may mean cutting back on eating out or entertainment expenses for a while, but remember that it’s only temporary.
  3. Consider additional income streams: If your current income isn’t enough to cover your expenses and save for your emergency fund, consider taking on a side hustle or freelance work. This can help you increase your income and speed up the process of rebuilding your emergency fund.
  4. Automate your savings: Set up automatic transfers from your checking account to your emergency fund savings account. This way, you won’t have to remember to transfer the money each month and it will become a habit.
  5. Re-evaluate your emergency fund: Take a look at your current emergency fund and make sure it’s still enough to cover at least three to six months of living expenses, the recommended figure for emergency savings. If it’s not quite big enough, consider increasing your savings goal until you reach that amount.
  6. Use windfalls wisely: If you receive unexpected money, such as a tax refund or bonus check from work, use it to boost your emergency fund rather than splurging on something else.
  7. Stay motivated: Rebuilding your emergency fund may take time, but it’s important to stay motivated and keep your eye on the end goal. Remember that having a fully stocked emergency fund can provide peace of mind and financial security.

By following these tips and being consistent with your savings efforts, you can rebuild your emergency fund and be better prepared for any future unexpected expenses.

Common Mistakes to Avoid with Your Emergency Fund

While having an emergency fund is important, there are some common mistakes that you should avoid in order to make the most of your savings.

The Dangers of Overusing Your Emergency Fund

If you start dipping into your emergency fund at the drop of a hat, you could be left with no safety net if a real emergency arises. It’s important to remember that your emergency savings should only be used for true emergencies, such as unexpected medical bills or the loss of an income. Using your emergency fund for everyday spending or discretionary expenses like a vacation or shopping spree can quickly deplete your savings and leave you vulnerable if a real emergency arises.

The easiest way to avoid overusing your emergency fund is to create a separate savings account for non-emergency expenses. This can help you stay on track with your spending goals and avoid dipping into your emergency fund unnecessarily.

How to Avoid Depleting Your Emergency Fund Unnecessarily

Another common mistake is to use your emergency fund as if it were ordinary savings. While it is sometimes tempting to use your emergency money for every unexpected expense, doing so can quickly drain your ready-for-anything savings and leave you vulnerable in the event of a real emergency.

One way to avoid depleting your emergency fund unnecessarily is to stay on top of your finances. This means creating a budget that reflects your true expenses and sticking to it. By tracking your spending and avoiding unnecessary purchases, you can reduce your reliance on your emergency fund and ensure that it’s there when you really need it.

Additionally, you can consider setting up a separate savings account for specific types of emergencies. For example, you could create a separate account for medical emergencies or car repairs. This can help you avoid using your emergency fund for expenses that are not truly unexpected. It’s a certainty that your car will need new tires every so often, for example. If you have kids, you can count on having to take them to the doctor a couple of times a year, so budget for these upcoming costs.

Taking these steps can help you make the most of your emergency fund, providing you with the financial security and peace of mind that you need to weather any crisis. Remember, an emergency fund is not just a savings account, it’s a lifeline that can help you stay afloat during difficult times.

Make it happen!

Taylor & Megan Kovar

The Money Couple


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