What Constitutes An “Emergency” Where One Should Use An Emergency Fund?

This is a question that my wife and I have wrestled with recently with our home purchase, our move, a severe illness, relatives visiting, and the impending birth of our second child, all in a two month period. Individually, these items are just part of life and can be dealt with, but in such succession, do they add up to an “emergency” worth tapping into an emergency fund for?

The answer to this question entirely depends on how one defines an emergency fund, and there is no strict answer to this. However, if you have an emergency fund (or are thinking of starting one), you need to make sure that you understand the purposes of this fund. Here are some questions to think about.

Can I use the fund if I am able to pay for the expense within my normal monthly budget? For example, I can actually cover the costs of each of these events within my normal monthly budget, but it is expensive and it leaves no breathing room at all.

Can I use the fund to pay for non-necessary expenditures? For example, I used part of our emergency fund to pay for a moving service when we moved when I realized that moving was going to be a massive project. It was not a strictly necessary expense, but it was very important and afterward my wife and I definitely felt that it was a worthwhile expenditure.

Can I use the fund to pay off credit card debts? If the credit card was used to catch a true emergency, then sure. If you’re just using the emergency fund to pay off a debt from a weekend of big spending… it’s probably financially worthwhile, but you need to think carefully about your choices.

Many people start an emergency fund with the general idea that they will use it to cover an “emergency” without thinking about what that emergency might be, then they get nervous when something unexpected happens.

My advice? Trust yourself. If you have enough sense to have built up an emergency fund, you probably have enough sense to decide whether money in the fund should be used for a particular expense. Just trust what your heart is saying and make the move – as long as you aren’t building up debt and you’re making a financial move that’s beneficial to your life, it’s probably the right move.

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  1. k says:

    I have “jobless fund” in addition to a general emergency fund, which is for miscellaneous expenses–house repair or unexpected maintenance, car emergencies, emergency travel in case of serious family illness, insurance deductibles, etc. At some point I’d like to separate out the house emergency money because having a separate, largely untouchable line makes me feel more secure, and makes my goals more concrete, but right now, there’s not enough in the general emergency fund for there to be much point to pulling separate portions out of the pot.

  2. Heather says:

    I’m a pack rat by nature, and I have a hard time tapping my fund even during valid emergencies. But (duh) that’s what it’s for! It’s a great idea to think “forward” about when you’ll pull that trigger and tap the fund. Also, it’s good to plan for what expenses you’ll forgo in order to re-fill the fund.

  3. Sailsa says:

    When I started my emergency fund I made a list of items for things it would cover including the following:

    Loss of job (This seems to be the main reason to have an emergency fund to me)

    Medical Emergencies (This is the area I think has the greatest likelihood of occurring although I would pay with my HSA first)

    Car Repairs (my car is still under warranty so I don’t have much built into my budget for car maintenance)

    Family emergencies (When I was in high school, my dad lost his job and was unemployed for several months. We all pitched in to help make ends meet (in addition to him using his emergency fund) and I would like to be able to offer assistance to one of my siblings should life throw something unexpected at them)

    I rent so don’t have to worry about home repairs but unexpected housing costs (burst pipes, etc.) will come from this when I own a house.

    Taking advantage of opportunities (This past year my cousin was stationed in Hawaii by the Army and I was given the opportunity to fly out and stay for a week. Normally I would save up for this trip, but I needed to schedule it for a week when my cousin had off so we could explore the islands together. Therefore I saved for part of the trip and used the emergency fund to pay for the rest. I then cut my other expenses to fill the emergency fund back up over the next few months. Now, this was definitely not an emergency but I didn’t want to miss an opportunity to travel to Hawaii avoiding hotel, car rental, and other expenses while visiting my cousin. Having an emergency fund gives me the flexibility to take advantage of situations when they occur that I would otherwise have to skip or go into debt to pay for.)

  4. Mukesh says:

    I have a question. There is mention of using the emergency fund for home repairs… would adding a sprinkler system for my lawn count under that category? I can’t afford it, obviously, in my monthly budget (I’ve received estimates from 2500 to 4K for the job) and I don’t want to put it on a credit card, so do I count that as an item to use the fund?

    Thanks,
    Mukesh

  5. Wendy says:

    Mukesh,

    I would count that as something to save up for over time. If you can’t afford to save $250/month for the next year and then have the system installed, then you can’t afford to ‘restock’ your emergency fund in a timely manner.

    I suppose others might feel differently, but that sounds a lot more like a convenience than an emergency.

  6. Kevin says:

    Mukesh,

    I’d say wait until spring giving you time to save some money for it. Its already September so you honestly won’t see much use out of a sprinkler system this year.

    I don’t know how you feel about lawn maintenance but a sprinkler system would never ever qualify as an emergency fund use in my book. In fact its adding a larger liability in terms of a bigger water bill.

  7. SJean says:

    I find it interesting the different ways people use emergency funds. Some a very strict, some are very loose.

    I’m pretty lax, its either I save up for a future larger expense (ie, a trip) in a separate savings account or I lump it in the same account as my fund for awhile, but in the end, it doesn’t matter where I put the money and pull it from, and whether it is an emergency. I don’t buy/do things I can’t afford and my savings is growing over time.

  8. Christine says:

    How I’m using my emergency fund:

    I keep about $500 in a special wallet for my emergency fund. And I’m using it now, since for the life of me I can’t find my purse (which is filled with such marvelous things as a credit card, a debit card, a post it with my ssn, my drivers license, a hairbrush, my glasses cleaner, and some other small things). Not cool. I’m hoping it’s in my dorm somewhere, I still haven’t unpacked all the way.

  9. Mukesh says:

    Thanks for the suggestions, I am also in agreement of saving for it in a separate savings account instead of using the emergency fund. But I was planning on getting it done in the fall (usually installers give discounts since that is off-season for them) hence, the curiosity of using the emergency fund. I have a yard almost 150ftx90ft lawn and watering it manually is very time consuming and its hurting the ground around the foundation of the house.

    Thanks,
    Mukesh

  10. razmaspaz says:

    I think there are two different interpretations of “Emergency” in your post. You mention illness as an example. Illness is an emergency, but not necessarily of the fiancial kind. Although in your case it sounds like both. I think the point of an emergency fund is for a financial emergency. If you can pay for your monthly expenses out of pocket then you should leave your emergency fund untapped. If your expenses are bleeding onto a credit card, then pull out the fund. I really only consider it appropriate to tap into that fund when the only other option would be charging, or tapping the retirement savings. Of course, this depends a lot on what youe emergency fund consists of. If you have a year’s worth of expenses saved, you can probably be a little more liberal with what you call an emergency. If you only have a month’s worth, well then you better be sure that you aren’t gonna lose your job this month if you tap that money.

  11. plonkee says:

    To me, its an emergency if it has to be paid for now, but it is too much to come out of the regular budget. What actually happens is that I pay for whatever on my credit card and then at the same time withdraw the money from my savings account. I then refill the savings account from my regular salary.

  12. Kaye says:

    Here’s Webster’s definition of emergency:
    1 : an unforeseen combination of circumstances that calls for immediate action
    2 : an urgent need for assistance or relief
    I have a narrow range of items that fall into this definition of emergency. Bailing my brother-in-law out of jail comes to mind. Many people use an “emergency fund” as a slush fund, or savings account. My criteria would be the same as Webster’s: unforeseen, urgent and immediate.

  13. Laura says:

    I made a decision to treat my emergency fund as such. I come from a family that used the emergency almost every month as a loan’ until the next paycheck. WHile it’s good to have a cushion, we never had more than a month of expenses saved.

    I got married and I was determined not to fall into that trap. I’m fortunate to have a husband who likes to save. We have a cushion in our joint account AND have an emergency fund.

    He has no debt and I have a car loan and a syudent loan to work on. I plan on not touching that money unless it is absolutely neccessary., meaning medical bills, car completely breaking down, etc. I agree with Kaye’s reasoning.

    Thanks for a great post!

  14. Stk says:

    I have defined my emergency activities clearly and have setup an emergency fund and as well as contingency fund, which is 25% of my emergency funds.

    When emergency happens, be it loss of job, medical emergency, the funds requirement can be best estimated but can never be calculated as per actual need.

    The contingency fund acts like cushion in case emergency fund fails to cover my emergency expenses

  15. kerry says:

    My husband and I have an emergergency fund. We have 6 months of expenses saved. Everyone thought I was nuts and made fun of me and penny pinching but 1.5 months ago he lost his job. We are not sleeping real well right now but I am so glad I did not touch that fund for anything other then an emergency. So keep up the good work folks.

  16. Jane says:

    I basically have a “three tiered emergency fund”. The first tier is a savings account which I feel I can use for pretty much anything. The second tier is a Money Market mutual fund which I can use for unexpected expenses ie. family illness, a unexpected great oppertunity, major housing repairs, and I will probably use this money for my next car. (either to buy outright or as a down payment) My third tier is U.S. Savings Bonds these would only be used in case of job loss or any other extreme financial situation.

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