When to Use Your Emergency Fund

Learn when you should and should not tap into emergency savings.

An emergency savings fund is money you should set aside to pay for an emergency situation that isn’t part of your everyday budget. The purpose of an emergency fund is to protect your daily finances from ruin due to unexpected expenses.

When you need money for an emergency, you don’t want to have to take it out of your checking account because you’ll be short on money for your current expenses. To avoid falling into a dangerous financial cycle, define what qualifies as an emergency, determine how much emergencies commonly cost and start funding your account so you’re ready when the unexpected hits.

What Qualifies as an Emergency?

No, a new car or clothes is not an emergency. Most true financial emergencies fall into one of these categories:

  • Automotive
  • Medical
  • Unemployment
  • Home repairs
  • Family emergencies

Auto repairs are often expensive, but a good budget should provide for them because unfortunately, they happen pretty regularly. You should expect to have to pay for new tires, new battery or major checkup when you own a car. If you can’t fit those expenses into your budget, you’ll have to reserve part of your emergency money for them.

Related: 7 Emergencies That Could Bankrupt You — and How to Plan Ahead

Although you can anticipate having a medical expense once in a while or a death in the family that requires last-minute travel and funeral expenses, you can never predict when these events will happen. You also never know when you might lose your job or have to make an unexpected home repair. All of these costs qualify as emergency fund expenses.

Typical Costs of Emergency Expenses

You’re probably wondering how much you need in your emergency fund. Experts typically suggest you save at least three to six months of your salary to cover costs if you lose your job. In addition, you might consider saving enough money in your emergency fund to cover the cost of a funeral, which currently averages between $7,000 and $10,000. Here’s a look at average expenses in some of the other emergency categories:

Car repairs can set you back financially, but knowing how much major vehicle expenses cost can help you budget sufficiently. Here are estimated costs for car repairs, according to RepairPal and the Transmission Repair Cost Guide:

Cost Estimates for Car Repairs

New Car Battery$145 to $366
Tire Puncture Repair$20 to $40
Car Radiator Repair$387 to $825
Brake Rotor Replacement$406 to $559
Car Windshield Replacement$200 to $401
Car Transmission Repair or Replacement $1,800 to $3,500
Oil Pump Replacement$474 to $1,707
Starter Replacement$284 to $629

 

Homeowners should sock away funds to cover home repairs, which can be required suddenly and urgently. Figure out how much you should have saved up in case of common home-repair emergencies. Here are average costs of some home repairs, according to HomeAdvisor:

Average Cost of Home Repairs

New Roof$7,000
Roof Repair$2,500
Electrical Problems$100+ per hour
Plumbing Problems$125 per hour
Foundation Repairs$1,000 per beam installed

 

Should you suddenly require urgent medical attention, you’ll want to be able to pay for those expenses without going into debt. Budget for emergency medical situations by knowing how much you might have to spend. Here are some estimate costs for expenses related to emergency room visits, according to Debt.org:

Cost Estimates for Emergency Room Visits

Average Visit$1,200+
Ambulance Trip$400 to $1,200
Critical Care Procedures/Surgeries$1,700 + $500/hour
Chest Pains or Severe Burns$1,000 + doctor’s fees
Infection with Fever$400
Basic Head Injury$400
Viral Infection$150
Laceration or Skin Rash$150
Insurance Co-pay$50 to $150

What Doesn’t Qualify as an “Emergency”

When a dress or a video game that you’ve been wanting goes on sale, that doesn’t qualify as an “emergency.” A financial emergency is something you need to pay for that is not in your budget.

When you create a budget, make sure you separate “needs” from “wants.” Use your emergency fund only for unexpected needs, never wants. Here’s a list of some wants you should never tap into your emergency fund to pay for:

  • Shopping
  • Eating out
  • Entertainment expenses
  • Vacations
  • Buying property
  • Starting a business

How to Build Emergency Savings

A good way to build your emergency fund is to sock away any windfalls you receive. For example, if you get a $5,000 year-end bonus or hefty tax refund, you could use that to seriously jump-start your emergency fund. If you don’t see any lump sum payments on the horizon, automate your bank account so that a small percentage — think 5 percent or 10 percent to start — goes into your emergency fund each month.

Where to Keep Your Emergency Fund

An emergency fund must be liquid so you can access it in a moment’s notice. You should still, however, choose an account that pays interest — it might be a long time before you access the money, so make sure your money is making money until you need it.

Traditional savings accounts are good for emergency savings — they typically pay interest and your money is immediately accessible — but an online savings account will likely give you a higher interest rate. Certificates of deposit sometimes pay higher interest than regular savings accounts, too, but you generally must leave your money on deposit for a specified time, such as three or six months. If you have to cash out a CD, the penalty might cost more than the interest you earned.

You might want to consider a money market account for your emergency fund, a kind of savings account that typically earns more interest than a basic savings account. Most money market bank accounts allow you to write a limited number of checks, which gives you access to your money. Keep in mind, however, that the minimum deposit and balance for this type of account is often significantly higher than that of a basic savings account.

Up Next: More Than Half of Americans Have Less Than $1,000 in Savings in 2017

  • Dumb

    People who are too afraid to use their emergency savings when there’s a freaking emergency are so dumb. #firstworldproblems

  • I’m a 70 year old who can no longer work and I had to use my savings for medical reasons. I have Medicare now but I can’t pay my rent or utilities, what can I do?

  • Peggy

    I’m a big advocate of saving when you can. I was unemployed for two months and having some money saved up really helped alleviate some of the stress and allowed me to focus on the job hunt.

  • Christina Lavingia

    You can also go on the other end of the spectrum where you never use your funds, even when your reason is legitimate. It’s important to feel out when it is appropriate, as you could damage your financial situation by misusing these funds — or not using them at all!

  • Kayla

    These are great tips. My main financial problem is figuring out how much or what percentage of my paycheck I should stick into my savings.

  • Seth

    After building my emergency fund I started adding some specific buffers to it. I added a good cushion solely for emergency car repairs, and then later some money for urgent or unexpected medical expenses. So I have my emergency fund for true emergencies, and then a bit for just the unexpected and inconvenient extra expenses of life while preserving a safety net.