When Should You Use Your Emergency Fund? | brokeGIRLrich
Emergency funds are awesome! I can honestly say that how well I sleep at night is effected by the balance in that account. I got it up to $2,000 pretty quickly in my early 20’s but hitting the goal of $5,000 took some time – partially because of paying off debt and partially because of raiding it.
But how do you decide it’s ok to raid your emergency fund?
Things I have raided my emergency fund for:
- Tuition Payment (bad idea)
- Relocation for a New Job
- Physicals to Start a New Job
- Car Insurance Payments (not recently, but it’s been known to happen)
I’m still not sure touching it for tuition was the best idea, mostly because I completely drained the sucker. I think if it were the difference between staying in school and dropping out AND it didn’t completely drain an account, it’s a valid reason – the problem is that there will always be another tuition payment, and what’s the plan then?
I’m a huge fan of emergency funds providing you freedom and the main thing I tap mine for is opportunity. When I decided I was going to take a much more lucrative job in New York City, I still had to pay to get there and find a place to live. Tapping my emergency fund made that whole situation possible.
Back when my emergency fund was much smaller, it allowed me to pay a few hundred dollars for the intense, insane physicals that are required to go work on a cruise ship. Since I had $400 accessible to me when I needed it, I was able to take advantage of a job opportunity that wound up letting me save thousands.
Other things I would be willing to tap my emergency fund for:
- Car Insurance Deductibles
- Health Insurance Deductibles
- Car Repairs
- A New Computer (if mine died suddenly and I had no plan)
- Travel Expenses for a Family Emergency
I would also be comfortable using it to cover living expenses if I lost my job.
How do you plan for these emergencies though?
Well, personally, my overall goal for my emergency fund is $10,000. I think this might be a little higher than the average single person needs to aim for, but I feel like if you work in the arts, you should plan for at least six months of unemployment expenses AND any health, car, home insurance deductible amounts too.
However, I can say that at a little over $5,000, I’m not losing any sleep at night, especially considering how low my expenses are lately. Interestingly enough, while living in NYC, $5,000 didn’t feel that comfortable to me and if I’d planned on staying there, I suspect my overall goal might be even higher than $10,000.
Additionally, you can plan for emergencies that you know will arise with a different account. For instance, I’m pretty certain that both my laptop and my phone are on their last legs. So I’ve started saving a little bit each month specifically to replace them.
I’ve researched the estimated life span of Toyotas and also have started a savings account to add a little each month for when I’m likely to need a new car… which is hopefully about 7 years from now.
I think for me it’s car repairs, moves, medical emergencies, computer (anything I can’t draw on other funds for), and job loss. Because my career is still fairly precarious, I’d also like $10,000, but right now I’m just aiming for $5000, which I should hit by the end of the summer if everything goes smoothly. I really don’t want to have to use it to cover other stuff, so I’m trying to build up other kinds of savings I can tap first.
C@thesingledollar recently posted…Zero Food Waste 2015, Week 6: Don’t Be Penny-Wise
I agree, having more than one savings plan is really the way to go.
Toyota, FTW. I just watch a video on YouTube yesterday of a guy’s million-mile Lexus (same thing as Toyota, just fancier).
What kind of laptop are you considering?
Will L. recently posted…The Pros and Cons of Renting a Furnished Space
Another Macbook, this one is going on 6 years, which makes them worth it to me.
I like the 6 month bench mark of all expenses. This way I’m covered for a good period of time if something major goes down.
Brian @ Debt Discipline recently posted…Week End Round Up #69
Interesting article. I think $10,000 is the perfect amount for your goal. I remember watching Suze Orman and she always said $9000 is what should be in an emergency fund I believe.
Kelly recently posted…Génifique Eye by Lancôme
I have $3k in there now. I’d like more, but paying off debt is more important to me. When I’m debt-free, I think 5k is a good number. I’ve used my EF for moving, car accidents, and medical situations.
Melanie recently posted…No Debt in My Dream
I agree – my number hovered between $2k-$3k the whole times I was paying off debt too.
I’ve been keeping mine at a healthy 5k for a while now. I’d LOVE to get it up to 10k, but I also want to start saving for my 5-7 goals. Worst case scenario, I could always pull from the medium term fund in case of emergency.
Stefanie @ The Broke and Beautiful Life recently posted…Diversity of Income, Diversity of Happiness: Why Having a Back Up Plan Isn’t Resigning Yourself To Failure
That’s true. I think it’s easy to get pigeon holed into thinking X is only for X, especially with what’s drilled into us about retirement planning.
I’d use my EF for car repairs, home repairs, medical emergencies, or to pay expenses if I were to lose my job unexpectedly. I have only about $650 right now, but my goal for the end of the year is $1500.
Kayla @ Everything Finance recently posted…How to Get a Mortgage Pre-Approval
Right now my goal is to have $5000 in my emergency fund. However, I don’t want to be using for certain things that I know will come up, like eventually replacing my computer. However, because I’m in full on debt repayment mode, it is hard (because I’d rather pay off debt, not that I don’t have money to) to set aside a small amount to save for a new computer, so I’m thinking of opening a digit account to be my “new computer” fund.
Liz recently posted…I’m Credit Card Debt Free!!!
I want to get ours up to $17,000. We’ve got a long way to go, but that’s about six months of expenses for our family (plus a little peace of mind cash if we run into yet another emergency.)
Femme Frugality recently posted…Shopping for Clothes on the Cheap
One of my biggest financial mistakes was not having an emergency fund before buying my first car. I didn’t have the money to pay for maintenance or repairs. Every visit to the repair shop went on my credit card. It took me years to pay it off. Now we probably have too much money in our emergency fund, but with DH retired and not collecting social security until next year we need it. I used it when my 2 year old computer crashed last year (warranty had just ended). I had to take the money out of our emergency fund… and just so you know it still hurts.
I dipped in to my emergency fund a little bit recently for a tuition payment. I had almost all of it saved up, but needed a last little bit to complete it. And this only happened because I didn’t give myself enough time to save up. For the Fall payment, I’ll be ready! 🙂
Chela @SmashOdyssey recently posted…Time Travel and Free Fun
Our emergency fund fluctuates from 5-10k as well. We dip into it for things like snow tires and computer parts. It’s nice to know that we have some flexibility if a big expense comes up without a lot of time to set money aside for it every pay check.
Taking any money from the emergency fund is always a topic that has to be thoroughly discussed before taking any sort of action. My fund usually takes a hit when it comes to car repairs or school time but I definitely like your guide on when it is okay and when it isnt to use the fund! Thanks for sharing!
You make a decent point about the computer repair. This can cost a lot and come as a nasty surprise without some sort of backup plan.