Still, knowing when to pull from your emergency fund is often challenging. On the one hand, you don't want to be left without any savings if a true emergency arises.
On the other hand, emergency funds are specifically designed to help you get through tough times, so you shouldn't be afraid to use them. Read on for expert recommendations about the best times to use your emergency fund.
Funding Emergencies at a Glance
- Emergency funds are monies set aside for unexpected urgent situations or catastrophes. Most financial experts suggest saving enough to cover at least three to six months of expenses in your emergency fund.
- Legitimate reasons to pull from your emergency fund include job loss, medical bills, and critical home or vehicle repairs. Discretionary spending, such as booking a vacation or cosmetic upgrades to your home, are generally not emergencies.
- You can build or rebuild your emergency fund by leveraging a high-yield savings account, automating deposits, and giving yourself credit for minor or even short-term wins.
Expenses That May Warrant the Use of Your Emergency Fund
“An emergency fund is exactly what it sounds like: funds set aside for emergency purposes only,” says Jake Hill, founder and CEO of DebtHammer. “Your emergency fund isn’t there to make life more comfortable or fund your lifestyle, like upgrading your phone, taking a vacation, or redecorating your living room. It’s also not for recurring or predictable monthly expenses.”
Determining what qualifies as an “emergency” can feel difficult, but the following situations are all good reasons to pull from your emergency savings, according to experts.
1. Job Loss
“If you lose your job or your income is drastically reduced, your emergency fund (not credit cards!) can bridge the gap while you regroup,” says Hill.
Losing your job is perhaps the most obvious reason to use your emergency fund. Without a regular income, your most important bills still need to be paid. This factor is why most experts recommend shooting for three to six months of expenses in an emergency fund. That amount should give you ample time to search for new employment and keep your bills up-to-date.
2. Medical Emergencies
Medical emergencies can be expensive, so an emergency fund can provide a cushion to cover the cost if you can't with your everyday spending money.
“This includes urgent medical care, necessary treatments, or unexpected costs like prescription medications,” Hill says.
3. Critical Home Repairs
“Home repairs that will protect the safety, value, and integrity of your home are also a good use of an emergency fund,” says Bobbi Rebell, certified financial planner (CFP) and personal finance expert at BadCredit.org.
While you shouldn’t necessarily use your emergency fund for aesthetic upgrades to your home — like new furniture or optional renovations — tapping into savings for critical repairs can absolutely be worth the money.
For instance, if you have a leaky pipe, pulling from savings to cover the cost of a repair can save you money in the long term, reducing the likelihood of water damage.
4. Critical Vehicle Repairs
Like home repairs, fixing your car can be considered an emergency expense, depending on why updates are needed.
For instance, you might use emergency savings to replace parts on a car to ensure you can still get to and from work, but you wouldn’t use an emergency fund to upgrade to a nicer vehicle just because you want one.
5. Replacing Important Technology
An “emergency fund use is also a good idea if you have an urgent technology repair that allows you to continue working and earning money,” says Rebell.
It might seem like a new phone or laptop does not qualify as an emergency expense, but the reality is it depends on why you need the upgrade.
For instance, buying the newest phone when you have one that works well is a discretionary expense, but upgrading a laptop for your work or maintaining your household can be critical.
6. Legal Issues
Legal issues are another expense requiring access to large sums of money, but it might not be in your regular budget.
Tapping into your emergency savings is justified when your safety is at risk and can be necessary for other legal emergencies like attorney fees.
7. Covering Bills You’ll Miss Otherwise
Missing a bill can negatively affect your credit score and lead to debt that is hard to pay back.
"If you're going to miss a bill and the financial penalties outweigh the benefits of keeping your money in your emergency fund, it's a good idea to withdraw the money and cover the bill," says Hill.
That said, an emergency fund will not sustain you long-term if your current budget is insufficient to cover your regular bills. You'll need to find ways to reduce your monthly bills or increase your income to avoid depleting your emergency fund.
8. Any Expense You Deem Critical
“We all define emergencies differently, so it is a personal decision,” says Rebell.
In the end, deciding what is an emergency is a difficult decision that can vary by the individual. Both Rebell and Hill recommend asking yourself a series of questions about how crucial the purchase is and its consequences before deciding to pull from emergency savings.
Emergency spending is justified if you will face financial consequences and don't have an alternative resource for payment. It might not be an emergency if you can put off the purchase.
“As a general rule, you should not tap your emergency fund for something that is discretionary if you can avoid that expense in general,” says Rebell. “For example, if you are not sure you can pay for something, like a vacation, but put down a deposit you don’t want to lose in the hopes you will have the money by the time it is due, you could be facing the tough decision of losing that deposit if you don’t tap into your emergency fund. We don’t want that.”
Tips for Building and Maintaining Your Emergency Fund
An emergency fund essential to any financial toolkit, but building emergency savings takes time. Even if you don't have the extra money to set aside what you want, simply getting started is the most important first step.
“Setting aside three-to-six months of expenses may be ideal, depending on your income and lifestyle,” says Alissa Krasner Maizes, founder of Amplify My Wealth. “However, starting now with an amount you feel comfortable with is preferable to delaying it.”
Other tips for building an emergency fund include:
- Choose the right place to store your money: “An emergency fund needs to be accessible enough to use when needed, but not so easily accessible that it tempts you for non-emergencies,” says Hill. He recommends a high-yield savings account, a micro-investing app like Acorns that automatically rounds up purchases, or a reliable online-only bank with competitive interest rates on traditional savings accounts.
- Automate deposits: “As simple as it sounds, automating deposits on a regular basis from your paycheck really is a great way to painlessly build up an emergency fund. Time and consistency really are your best bets,” says Rebell. Hill adds that apps like Acorns take the thought out of this process, so he recommends them for those who have trouble prioritizing savings.
- Keep your emergency fund separate from other savings: Rebell recommends keeping your emergency fund in a separate account from savings for vacations, a home down payment, or other goals. That way, you aren’t tempted to pull from emergency savings for different big expenses.
- Don’t get discouraged: Emergency funds are meant to be used, so don’t get discouraged if you have to deplete the savings for a necessary expense. Just start again by setting money aside for the next emergency. “Check in on your account, track the growth, and celebrate all of your financial wins no matter the size, as your compounding growth is building your wealth to ensure you have more money and peace of mind,” says Maizes.
With these steps, you can ensure your emergency fund is stocked when crises arise. Learn additional ways to boost your savings.
