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7 Questions to Ask Before Dipping Into Your Emergency Fund

Shanzaib Malik
7 questions to ask before using your emergency fund

Life has an interesting way of throwing you curveballs. And fewer than 4 in 10 Americans have $1000 in savings to cover an emergency expense. While it may be impossible to prepare for every unexpected event, the least you could do is be prepared financially. An emergency fund gives you a three to six-month buffer just in case you suddenly lose your job or source of income. Knowing when to spend that money is critical and can help you make the most of your savings. We take you through six questions you should probably ask yourself before dipping into your emergency fund.

1. Is it unexpected?

Here’s the thing, the more diligent you are with budgeting, the less likely you are to use your emergency funds for something that’s not an emergency. It all comes down to proper planning. No one is perfect, and you could still find yourself in a bit of pickle. Here are a few examples of the most common unexpected expenses and the expenses you probably should’ve known about

Unexpected Expenses – Use The Emergency Fund:

  • Losing your job
  • You get demoted, or your pay gets cut from working fewer hours.
  • Damage to your home.
  • Car repairs you weren’t prepared for.
  • Unplanned medical expenses.

“You Should’ve Known” Expenses:

  • Holidays like Christmas, Birthdays, Mother’s Day, and Father’s Day.
  • Routine Car Maintenance
  • Regular doctor visits

One of the reasons why they say you should have three to six months’ worth of living expenses in your emergency fund, is for that very first point in the list of unexpected expenses: losing your job. Looking for costs takes time.  You still have to pay the mortgage, keep the lights on, and put food on the table. It’s a lot. Moving back into your parents’ home may not be an option for many people, so you need to assess your situation before coming up with your savings goals.

2. Is the purchase necessary?

Before forking over your hard-earned emergency fund cash on that weekend getaway, or bottle service on a Saturday night, ask yourself a question: am I about to spend money on something necessary? If you answered “No,” it’s probably a good time to re-evaluate. Don’t blow savings on things that could derail your long-term goals.

Here are a couple of examples of “Needs” and “Wants.”

Things I Need:

  • – My car broke down and I need it for work.
  • – My tax bill was higher than I expected it to be.
  • – Unexpected travel needs for family reasons.
  • – Skills that will help me find employment.

Things I Want:

  • – That new car
  • – That awesome new iPhone or Galaxy
  • – A weekend getaway with friends or family.

If your car breaks down, you need to find a way to get back to work. If you lost your job, you might need new skills to help you find a better one. If your taxes were higher than expected, you’d need to find a way to pay. The bottom line is you should only spend your emergency funds on things that you need right now. That new car or phone can wait, and I’m sure your friends and family won’t abandon you for missing a trip. It’s just not necessary.

3. Do I have to spend the money, or can It wait?

The great philosopher Jean-Jacques Rousseau once said that: “Patience is bitter, but the fruit is sweet.”

Building an emergency fund is all about long-term financial security, not instant gratification. Try avoiding impulse purchases or avoidable expenses if you can. Here are some examples of urgent expenses versus the ones that can probably wait:

Can’t Wait:

  • Broken Fridge or A/C.
  • Suddenly moving houses.
  • Burst pipes.
  • House Flooding.
  • Apocalypse.

Can Probably Wait:

  • A great deal at your favorite store
  • A new phone
  • New clothes or accessories

Don’t lose sight of your long-term savings goals and spend your emergency fund on things that aren’t urgent. If you genuinely feel like you’re facing an emergency, don’t feel bad about dipping into your emergency fund! Only you will know what’s suitable for your situation. The best I can do is offer a bit of guidance and point you in the right direction. 

4. Are there other ways you can pay for it other than using money from the emergency fund?

Building an emergency fund takes a lot of time and dedication, and so dipping into your fund, even if it is genuinely an emergency, can feel a little disheartening.

Before you dip into your emergency fund, ask yourself this question: have I evaluated all other alternatives for generating the funds I need?

Perhaps there’s a way for you to earn the extra money through a side gig, picking up an extra shift at work, or by selling some unwanted things you have lying around. If you don’t have anything to sell and you’re already maxed out with work, perhaps there’s an affordable way for you to borrow the money you need to avoid taking a massive chunk out of your savings?

Shameless Plug: By taking out a Salary Advance with Stately Credit, you could get interest-free access to wages you’ve already earned, ahead of your next paycheck, without paying any interest. Or, if you need a more significant amount, consider a Salary-Linked loan. By collecting repayments by salary deductions, we minimize the risk of defaults and pass on those savings through dramatically lower interest rates.

A loan is just one option out of many that you could consider when finding other strategies for raising the cash you need without dipping into your emergency fund.

5. How much of your emergency fund will you be using?

An important point to consider is the amount of money you could potentially use relative to the total amount you have saved in total. If you’re using a tiny percentage, like 2%, for example, then you shouldn’t feel too bad about dipping into your emergency fund to cover an unplanned expense. If, on the other hand, the cost is in the region of 50% – 70%, you need to strongly consider alternatives before taking such a massive chunk out of your savings because it could potentially derail your long-term goals.

6. What are the consequences if you don’t use your emergency fund?

There can be severe consequences if you choose not to use your emergency fund on certain expenses, so weighing out the pros and cons of not spending the money you need is essential.

If not using the money you have saved up would somehow lead you into debt, damage your credit, or, more importantly, your health, you should re-evaluate your decisions and probably use your emergency fund.

7. How long will it take to rebuild your emergency fund?

You need to strongly consider how long it will take to rebuild your savings if you decide to dip into your emergency fund to cover an unplanned expense. If it will only take a couple of months, there’s nothing to worry about. If you’ve spent two years building up an emergency fund and end up spending over half on a single expense, rebuilding your fund could take a lot longer, and you run the risk of losing the motivation to start over again.

Bottom Line

Knowing when to spend your emergency fund can be just as important as saving up in the first place. Before you dip into your emergency fund, make sure you ask yourself the seven questions above and evaluate all your alternatives before arriving at a decision. If you need access to cash but don’t want to take out a loan, Check out this page to see how we could help!

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