It’s one thing to save for emergencies. It’s another to decide whether you’ve got one. Here are some tips to help you determine if it’s time to dip into your emergency fund — and how to rebuild it if you do. Don’t have an emergency fund? It’s time to start building one.
Think you’ve got an emergency on your hands? To determine whether you should withdraw your emergency fund dollars, it can help to remember why you started the account in the first place.
What’s a real emergency?
Emergency funds can help avoid debt and unexpected retirement account withdrawals. Examples of the unexpected include losing your job, unplanned medical expenses, or natural disasters like hurricanes, tornados, floods, and fires. Unanticipated repairs to your car can qualify as an emergency too, if you can’t get to your job without it. A 24-hour sale on a trip to the Bahamas? Not so much.
You can plan for predictable.
It’s easy to view any large expense that doesn’t happen on a regular basis as an emergency. For example, holiday spending, taxes, renewing your car registration, and paying insurance premiums each year can seem like emergencies because of the immediate financial hit you take. But they’re not.
The difference? They’re predictable, even if some of them, like how much you owe in taxes, may change from year to year. Unlike a true emergency, you can (and should!) plan ahead for these expenses — and you probably have, if you’re sticking to a regular budget.
The U standard.
If you’re still not sure, ask yourself if it’s unexpected, unplanned, and urgent? If the answer to any of these questions is no, stay away from your emergency fund.
Building your emergency fund … again?
Now that you know what’s worth tapping into your emergency fund for, what can you do to build it up again if you need to use it? Here are a few tips:
- Trim your spending. Easier said than done, right? You’d be surprised. First, think about where you’re spending your money. Regular living expenses like transportation, groceries, and monthly bills — outside of credit cards — are necessities. So focus on non-essentials like entertainment. Think about those monthly subscriptions or services you may not necessarily need. You may also want to look at how often you eat out and see if you can cut a night or two.
- Take a second job. What? You already have a job? Well, think of the second one as temporary — just until you’ve replenished your emergency fund. There are plenty of opportunities for part-time work on the weekends or at night. And who knows, you may make some new friends, have some great experiences, and find something new that you enjoy.
- Sell it. Speaking of selling, look around to see if you’ve got anything someone else might want to buy. You could start with unused appliances, tools, or toys. You could sell them the old-fashioned way through a yard or garage sale, or find plenty of buyers online.
Emergencies are a part of life — but it’s important to differentiate between what’s a true emergency and what’s not. If you have a true emergency, don’t hesitate to dip into your rainy day fund — after all, that’s what it’s there for. If you do use your emergency savings account, building it back up will take some work. If you’re realistic about what constitutes an emergency and have a plan to rebuild your emergency account, however, you can help yourself remain in solid financial standing even if life throws challenges your way.