When is it OK to Use Emergency Funds? (and When it’s Not)

When-Is-It-OK-to-Use-emergency-fundsYou have been doing really well and saved money for an emergency. You have pinched pennies. You have cut corners. You have avoided the temptation of the Chai Latte. Now, you are looking at an emergency and wondering – Should I dip into my emergency fund? Sometimes that answer can be easy, sometimes it can be tough. Sometimes we are tempted to go to that fund when we don’t really need it. So how do we know when we have a real emergency and when we can scrape by?

If you haven’t build an Emergency Fund yet see this post: How to Build an Emergency Fund Quickly

What is an Emergency?

Everyone has a different definition for what constitutes an emergency. When it comes to your emergency fund, however, the distinction should be clear. An emergency is going to fit these criteria.

A One-Time Unexpected Event

Did you lose your job? That’s an emergency and you may need those emergency funds to pay the bills until you find a new job. Did a tornado or other natural disaster strike your home? You may need the emergency funds to cover the deductible.

One-time unexpected events are things you can make contingency plans for, but you cannot predict when they will happen. Annual occurrences like holidays and back-to-school time you can plan ahead and budget for. Sometimes you can even plan for expected health problems, such as flare-ups from a chronic illness or seasonal allergies. Even the baby you may not have planned for gives you plenty of time – nine months – to save and plan ahead. When it comes to medical expenses, only use the emergency fund for things that are completely unexpected – broken bones, injury from a car accident – that you cannot work out a payment plan to cover.

Absolutely Necessary

An emergency will be something that you cannot do without. If you are in an accident or your car suddenly breaks down unexpectedly, you need your vehicle for work. If you have mold in your house or termites, you need to get that addressed right away. Things that you need to make it to work and live healthy are the things you need your emergency fund for when something goes wrong. If you have an old but functioning refrigerator, you do not need to replace it, however if your refrigerator suddenly breaks down, you have to be able to keep foods fresh and cool. Your washer and dryer though, can wait until you save up some money. You can reach out to a friend, neighbor, family member, or just your local laundry mat on a Saturday or Sunday.


So you are getting ready to have a baby. You are 30 weeks along. You have been stocking up on diapers and putting the nursery together. Then something happens and you’re in labor early. Even though you can plan for the arrival of the baby, if an emergency happens you may need the emergency fund. The extra hospital expenses surrounding the care of a premature infant may mean you need to dip into the emergency fund or you may need to get the car seat and bassinet that you planning to save up for over the next ten weeks.

Use the emergency funds for things that simply cannot wait. The broken bone, the emergency medical procedure, these are things you have to take care of right away. If the emergency is something that can wait, however, pinch expenses and save up to get the emergency taken care of. This can be the aforementioned washer and dryer.

Alternatives to Dipping

You should never feel bad about having to dip into the emergency fund. That does not mean, however, that do not have to consider alternatives to dipping into the fund. Sometimes even a major emergency can be handled by pinching pennies and foregoing a luxury expense. See our post on What to Do in a Money Emergency.

You can also consider using credit to cover the emergency, but if you do, you should follow these two guidelines.

• Do not borrow more than you need for the emergency. Whether you are taking out money from your home equity or using a credit card, do not use more than you need.
• Make sure that you can pay off the balance quickly. Interest is not something you want to spend money on. If you are going to use a credit card to cover the emergency instead of your emergency fund, make sure that you can budget a fast pay-down – within 6 months if it is a large amount.

An emergency can happen. The best thing to do is to plan. Remember that your emergency fund is only one plan. Regular car maintenance can prevent unexpected breakdowns. Saving up for known medical expenses, such as a surgery you know you will need to have later in the year or the baby on the way, will keep those expenses from becoming emergencies. Your emergency fund is there when you need it, so do not be afraid to use it when the emergency happens.

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