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Three Questions to Ask Yourself Before Dipping into Your Emergency Fund

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What we’ll cover:

  • An emergency fund can be used to help cover unexpected expenses, but everyone’s definition of an emergency can vary
  • Here are three questions you could ask yourself to help determine whether it’s time to use your emergency savings: Is this an unexpected expense? Is it necessary? Is it urgent?
  • Some examples of when you might want to use your emergency fund include a job loss, an urgent medical procedure, major car repairs and certain home repairs

Many of us are probably already familiar with the basics of an emergency fund – the who (everyone), what, why, where and how much (enough to cover at least 3-6 months of expenses). 

But what about the question of when

When would it be appropriate to actually use the money you’ve been putting away in the emergency fund? In other words, what counts as an emergency and what doesn’t?

Some common examples might include a job loss, an urgent medical procedure, a leaky roof or major car repairs. An extraordinary example would be the coronavirus pandemic, a global emergency that has created numerous health and financial hardships. 

Instead of just giving more examples of potential unexpected expenses that you could use your emergency fund for, let’s look at some questions you could ask yourself to help determine whether a situation constitutes an emergency. 

Here are three key questions that can help guide you:

  • Is this an unexpected expense or event?
  • Is this expense necessary?
  • Is this something urgent that requires you to act immediately?

If the answer is “yes” to these three questions, it’s probably time to tap into your emergency fund.

Is this expense or event unexpected?

Everyone’s definition of an emergency can vary, and when you’re in a bind, everything can seem like an emergency. 

For example, forgetting to buy a present for a friend’s baby shower you’re headed to might feel like an emergency when it’s simply something you forgot to plan for ahead of time (it’s OK – that can happen to any of us). 

But let’s say you accidentally tore off your car door because you forgot to close it before backing out of your tiny garage (inspired by true-life events). This would be an emergency: It is definitely unexpected. And now you have to get the car repaired or else it would be difficult for you to get to work. 

Unexpected events or expenses can include things like: a job loss, major car repairs, urgent medical procedures, and certain home repairs (e.g., flooding, leaky roof, etc.). 

Generally, you should avoid using your emergency fund for predictable or recurring expenses because they should already be a part of your budget. Without some ground rules like this, it might become tempting to raid your cash reserve whenever you need to pay for a last-minute expense.

Is this expense necessary?

Again, this question can be tricky. Just as sometimes everything could seem like an emergency, every expense might feel “necessary.” This is where it’s important to understand the distinction between wants and needs. 

You may want or feel like you need to upgrade your phone right away after noticing how slow it is compared to the latest model that your friend has. Now, we’re not saying you can’t buy a new phone, but you shouldn’t use your emergency fund to come up with the cash. Fun purchases like that can be budgeted for. But it is not necessary because life can still go as normal whether or not you have the new phone. 

Let’s consider an example of a necessary expense. Remember that car door you accidently took out? Repairing that car door is necessary because otherwise it would impact your ability to get yourself to work. Sure, if you lived in a big city, you could find alternative transportation. But if you normally need your car to get to work (say, you’re a long-distance commuter), not repairing your car would cause a significant disruption to your day-to-day life. You really can’t drive while dragging a broken car door on the road . . .

So another way to think about whether an expense is necessary is to ask yourself if this situation needs to be addressed in order for you to carry on with your day-to-day duties.

Is this something urgent that requires you to act immediately?

If something unexpected happens and you must act immediately, then you’re most likely facing an emergency. 

Those common examples of an emergency that we already mentioned – urgent medical care, job loss, major car repairs and home repairs – all meet this urgency test. 

Certain travel arrangements may also qualify – for instance, if you need to book a last-minute plane ticket to go tend to a sick parent or a close friend.

Do you have to use your emergency fund to pay for emergencies?

While the whole purpose of an emergency fund is to help pay for unexpected expenses, you may not always have to dip into your fund to pay for them. There may be other ways you could cover such expenses. 

This might mean looking at your monthly budget to see if you could shift some money around or cut back in certain areas for a few months to come up with the necessary funds. Or could you perhaps take on a side project and earn extra income to help cover the cost?

When it comes to medical emergencies, is there an option to use your Health Savings Account or Flexible Savings Account to help pay for any out-of-pocket costs?

You might also want to explore if there are other financial resources you could lean on for assistance during an emergency. For instance, if you lost your job, you might be eligible for unemployment benefits. To be sure, an unemployment check won’t completely make up for your old paycheck, but the funds could help to tide you over in the short term. 

What if you’re in an emergency but don’t have an emergency fund?

As the world continues to grapple with the unprecedented economic challenges brought on by Covid-19, this is a scenario that many people may find themselves in. 

Not having some emergency savings on hand during a global health crisis can make everything feel incredibly overwhelming. But you do have options to consider.

As a first step, you may want to take a look at what government resources are available. In response to the coronavirus pandemic, the US government is providing various financial relief programs under the CARES Act for both individuals and small businesses. 

It’s also a good idea to take a hard look at your budget and cut out any non-essential expenses so that you can shift your money towards paying for the essentials (e.g., rent, utilities, groceries, etc.).

If you’ve lost your job due to the coronavirus, that’s a personal emergency on top of a national emergency. If you do not have any savings, you may consider working with your bank to see if you can secure a personal loan to help cover your expenses in the short term. Many banks and other financial institutions are stepping up to help during these difficult times by offering various types of financial assistance to their customers. 

Learn more: How the CARES Act Could Help You and What to Do if you Lose Your Job Due to the Coronavirus.

Additional resources from Goldman Sachs

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This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.