Could you come up with an extra $500 in an emergency? What about $5000? The statistics about Americans’ inability to cover emergency expenses are sobering, so it’s not surprising that posts calling for emergency funds are everywhere. Peace of mind for the win. And with all the emergency fund hoopla, there’s even been some debate about how much is too much for an emergency fund.
While the Internet’s pretty much got the what and why covered, but what about the when of emergency funds? To be honest, I hadn’t given it much thought beyond to say in an emergency, duh. But when people started suggesting that we use our e-fund to float my upcoming maternity leave, I realized I actually have some pretty strong feelings about when I will—and won’t!—dip into that account. Here’s my take on when to spend your emergency fund.
Get a Plan
I’m not sure if this saying is popular in the regular world, but in teacher world, it is an absolute mantra. Poor planning on your part does not constitute an emergency on mine. Hello, missing homework. The adage also holds true with emergency funds. Or at least it should.
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You drive a car? Awesome. Me too. You live in a house? Twinning! Basically, if you are the responsible party for any big ticket item, I can pretty much guarantee one thing: it won’t last forever. In fact, there are certain things that you can pretty well time. That oil change? Every three to six months, baby. New tires? Five or ten years if you’re lucky. Replace your roof, reside your house, install new windows. Count on it within a decade or two of home ownership.
Those are not emergencies. They are expenses. While they may be much less infrequent than, say, shopping for groceries, think of them as the beaucoup bucks version of the spices you only buy once every three months years. You might be willing or able to stretch the shelf life of these things more than many people (hat tip to you, Sir, with your iron stomach and nerves of steel), but the expenses are inevitable. If you think poor planning is a solid justification of when to spend your emergency fund, think again.
Define Emergency
Now that we know what an emergency isn’t, let’s talk about what it is. An emergency is serious, and it’s unexpected. The nitty gritty details will shake out differently for everyone, the foundation is the same. If it doesn’t meet both of those criteria, it’s not an emergency.
Let’s take Half Penny, for instance. The birth of our child is, in fact, serious. It’s the most serious, seriously terrifying, and seriously exciting thing I’ve ever done. But it’s not unexpected. And even if it was, we’ve already had 6 months to countdown plan accordingly.
If there’s an unforeseen medical issue, that’s an emergency. If your shed blows down and the shingles blow off part of your house in a storm, that’s an emergency. If you lose your job out of the blue, that’s an emergency. Otherwise, put the emergency fund money down.
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And if you disagree with my take on what an emergency is, I forgive you. In fact, the more scenarios you can run through that help you solidify what an emergency is and isn’t in your world, the better. Once you’ve got a solid definition of an emergency, it’ll become much clearer when to spend your emergency fund.
Check for Alternatives
But wait. There’s a catch. I know, I know. This section is like the guy at the end of the advertisement that talks really fast but is also totally worth listening to because he’ll talk you out of actually buying whatever they’re selling.
You know what an emergency is not. You know what an emergency is. But you also need to make sure that there is no other way you could float the expense before you dip into your e-fund. No, I’m not talking about debt. But if you have some spending money left in your budget that you haven’t touched or you are paid for a side hustle this month, you might consider using some of that to cover the expense or to replenish your emergency fund.
Why? Because emergencies are unexpected. And you already told me that you’re twinning with me because we both own cars and we both own houses. Well, buckle up, because last year, we kicked things off with a hit-and-run accident, a dead furnace, and a windstorm that took our shed and part of our roof to Kansas with Toto. But if you’ve already thought long and hard about when to spend your emergency fund, you can take those disasters in stride just like I did. Which means you’ll broadcast a four-alarm fire on Twitter, and you’ll cover your bills just fine.
So Tell Me…When do you or when don’t you tap into your emergency fund?
This is so timely. Work has been rough for me lately, and we were planning on what we’d do if I lost my job or if I suddenly quit. Either scenario would cause us to dip into our emergency fund. In fact, it’s been rocky, so we’re putting our extra student loan payments into savings for the next two months just in case my job situation changes. If everything is good, we’ll apply that cash surplus back to our loans (and mine will be paid off!). But this is why it’s so important to have a dang emergency fund! You never know what will happen.
Yes, yes, and more yes. After I got the boot not once, but twice, I’ll likely never be in the “don’t need an e-fund” camp. And I think that’s really smart to hold off on your loan payments. That’s what we’re doing with our mortgage and Vanguard until post-baby just to make sure everyone is happy and healthy.
Timely post! I lived so long without any money in savings; thus when my car would break down and I’d hear the cost of an expensive repair, I’d break down in tears privately, freak out, and wonder how to get the money.
But now I have a baby step emergency fund ($1000) and I admit I reacted the old way on Thursday when I heard that a pump that went out on my car could cost $300 to $500 to fix and I was in tears (when I got home). But after I calmed down, I realized, “What’s the big deal? I’ll pay for it out of savings, then replenish savings as soon as I can!!” It may take awhile to not feel that panic as my first reaction.
Panicking is usually my default setting. I realized in writing my post that I really am not giving myself many reasons to spend my e-fund, and that’s by design. Otherwise, I know I’d dip into…and when I really needed it, it would be gone.
Kudos to you for having an e-fund and using it exactly how you planned!
You make a very good point about not planning versus a true emergency. And you said my favorite word relating to an e-fund: replenish! People talk all about having emergency funds, but not much about replenishing them once they’ve been used. For us, the e-fund might be used for a major illness/hospital stay beyond the range of our usual health costs, a family emergency, or a significant unforeseen car or home repair beyond what we might reasonably expect.
That’s the perfect way to sum it up, Gary! It’s for what’s just beyond what you expect and plan for.
Thanks for linking to Mr. Groovy’s post, Penny! He wrote about some of the emergencies we’ve had the last few years. Luckily, none of them were hugely serious or costly.
I love that expression about poor planning. I said it under my breath many times on the job. And I agree with you about what constitutes an emergency. Knowing you’ll need to replace a roof in the next fifteen years should motivate you to save and prepare for that. It’s not an emergency. But if your three-year-old roof gets hit with unexpected damage from a storm, getting it fixed might constitute emergency spending.
That’s what happened to us! We were (and still are) socking away little by little for siding, windows, etc. We know it’s coming down the road. But when that windstorm did a number on our roof, we got one a lot sooner than we thought! Thankfully, insurance kept us from having to dip too deeply into our e-fund.
And it’s my pleasure to link back. It was a great post. No surprise there!
We have a hybrid e-fund/reserve system, which probably makes us bad money bloggers. We don’t really keep a separate account just for emergencies.
We have a reserve fund from which we can draw if need be, but which stays untouched for years and is fed by regular deposits, but it covers both emergencies (like backing into someone’s car and paying for damages and hospitalization copays), but also things like a new HVAC system. I imagine there’s a point at which we’d say “Yikes, it’s too low and we need to bulk it up,” but so far our system works.
And I think we can do that because the fund is large enough to do it, compared to our regular expenses. If we had a month’s worth of expenses put away or less, then we would need to be a lot stricter. As it is, it has worked fine.
We used to keep our emergency fund in a separate account, but now we just have it all in the highest (1% whoopee) savings account we could find. I imagine once things get a little more settled with Half Penny, we’ll sort it out again. But for now, one fund works for us, too!
Timely post! We just had a nail go through our tire and had to replace 2 ($300) along with just filing our taxes and seeing how much we owe I had the Emergency Fund in the back of my mind as a backstop.
As of right now I haven’t declared an emergency but with the little gal coming in the next 7 days – I might change my mind!
100% agree on defining what an Emergency Fund should be used for ahead of time – otherwise it’s too tempting to use it without trying to find another solution
I think you could justify the tires if you wanted to! It’s like an accident. But I’m the same way. It takes a lot for me to dip into that account. Cannot wait to hear about your bundle of joy!
Uh, pretty much never TBH. I’m pretty good at hustling and prefer to try come up with new cash in a pinch!
It’s interesting how budgeting and planning and paying off debt seem to result in fewer ’emergencies.’
Maybe it’s better luck, but I think it’s more likely that actually thinking about money helps me plan better and remember the less frequent expenses like car registration and annual insurance premiums. Plus, eliminating debt provides more wiggle room in the budget, so there’s money to save (ideally) or spend on unexpected expenses that would otherwise seem like emergencies.
Penny, you’re a national treasure! And I say that not because you used one of my twisted posts as a jumping off point for this post. I say it because you went beyond the financial guru mantra of setting up an emergency fund. You actually talked about the mechanics of using one and provided real-world examples. And I don’t know, maybe I’m dense, but concrete examples heighten my understanding of something far more than abstract mumbo-jumbo. Thank you.
P.S. I love the way you write. The line below made my day. Great freakin’ stuff.
“Well, buckle up, because last year, we kicked things off with a hit-and-run accident, a dead furnace, and a windstorm that took our shed and part of our roof to Kansas with Toto.”
Storm hits and takes off part of the roof. Emergency fund time. Medical emergency/hospital/specialists. Emergency fund time. Regional economy bottoms out, husband loses job, no jobs to be had. Sigh. Emergency fund time.
Confession time. I don’t have an emergency fund. But ok, it’s not really that juicy of a confession since I kinda sorta have 4 or 5 or 6 emergency funds. Or maybe one big one. Basically, I use the kinda-sorta envelope budgeting system where my main checking account is divided into different ‘envelopes.’ Some of these envelopes are things like car maintenance and repairs, home maintenance and repairs, etc. And then I’ve got a growing HSA to cover any medical bills. So I guess instead of having one emergency fund where I’d have to challenge myself each time I’d use it, I have smaller designated funds that I’m constantly contributing to. Since these funds are very narrowly purposed, I don’t have to wonder whether I should be paying for a broken window out of the home repair fund or not. That’s what it’s there for. And if a fund consistently gets low, I know I’m not budgeting enough for that category. But since I’m a worry wart, I have a tendency of overbudgeting for each category and occasionally have to convince myself that it’s ok to take a chunk out of an overstuffed fund and do something more useful with the $$$.
Like a little used work benefit, my emergency fund is basically for a step down from death or dismemberment. I barely consider the purchase of a new place to live under shitty and unexpected circumstances like we’re doing now an emergency and am only ok with using half of it now temporarily under the strict agreement that the money we make back selling our place later will immediately go to replenishing it. Because yes we have to decamp quickly but that doesn’t mean that anyone is missing a limb or is in traction.
I take that stance because I remember jobhunting for a year during the Recession. I remember Grandma becoming bedridden and requiring 24 hour care, I remember mom requiring unplanned non-elective surgery and being out of work for weeks and months. I remember Dad falling into months-long, possibly years-long deep depression after losing his work. There are far worse circumstances to be facing than having to replace a vehicle (which I’ve had to do) on short notice or buying new tires (which I had to do 6 times in 8 months). It’s gotta be something pretty dire to warrant spending down the emergency stash.
At a certain point of asset-building, I will become less militant about it because it’ll all be merged into an XXXXL sized pot of cash/stocks/other liquid assets. But today is not that day. 😉