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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