Emergency funds are rather useful things to have. They can be built up nicely to help you through a tough time. When you realize that you need something done that you don’t have the money for you look to this fund to help you. You also find that you look to the emergency fund when you’re out of work for an extended amount of time.
Having an emergency fund can save you a great deal of hassles and heartaches. The problem is knowing when to use the emergency fund. So just how do you know when to dip into the funds that you’ve so carefully set aside?
Do you dip into the fund when you experience a job loss? This is a situation that can cause you a lot of stress. It can also make you more tempted than ever to dip into the money that you have designated for the worst case scenario. Even though it may tempting you need to wait a bit to dip into the fund.
You want to check on your other income options at this time. Do you have severance pay or can you draw unemployment compensation for a while? If either of these is an option then you should attempt to reduce expenses and continue adding to the emergency fund you already have in place.
Unemployment Compensation Runs Out
When you’ve been unemployed for an extended amount of time you come to rely on the amount of weekly unemployment compensation that you receive. Chances are when you first became unemployed you reduced all your expenses and continued to feed your emergency fund. Now that the unemployment has come to an end and you still don’t have a job it’s time to use the emergency fund. You have to continue paying the bills and purchase those items that you need. If you’re careful the amount in the emergency fund can stretch far enough to cover your expenses for a few months.
When the time comes to dip into the emergency fund just to live you want to live on as little as possible. The idea of an emergency fund is to see you through when you have no other alternatives. Even a reduced amount of income is an alternative to dipping into funds designated for something else.
The emergency fund should be used when you come across emergency repairs. What qualifies as an emergency? The air conditioner breaks in the middle of summer when temperatures are in the low hundreds or the car breaks down on the side of the road while you’re trying to get to work. Both of these qualify as emergencies. Depending on where you live and how far you are from a laundromat the washing machine breaking could qualify as an emergency. Whether or not you fix or replace this or the other major appliances in your home is entirely up to you.
Emergency repairs are not limited to appliances and the car. The repair could be needed for the house itself. If your roof starts leaking this can cause all sorts of problems such as mold to occur inside the home. The emergency fun should be used to repair the leak and fix whatever water damage was caused by the leak. The wiring in the home should be checked to make sure that no damage was done to it as well.
When you have emergency repairs to do you want to make sure that you have everything you need done fixed to make sure you don’t need to redo the repair. If you have a way of creating additional income to help cover most or all of the expense then you should leave the fund alone.
If you are sick for an extended period of time then you’ll likely have large medical bills and prescriptions to buy with little to no income. Even with a paid sick leave it might not be enough and may not last until you get well. This means that you may have to make payment arrangements for medical services not covered by insurance and attempt to reduce expenses until you get well. What happens if you run out of paid sick leave before you get well? You have to dip into the emergency fun in order to help cover your regular and extra expenses during this time.
The use of your emergency fund is a last resort. When you use the fund it’ll be for what you deem as an emergency and when there is no other alternative to its use.