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My wife and I are both young 20-somethings, married for a year (dated since ’07) who are trying to get our finances set up for the future. We decided that the second year of our marriage was the year that was going to see us open a Roth, start our emergency fund savings, and really hammer into our student loans.
We have a question about the emergency fund, though. We watch Suze Orman a lot and are familiar with Dave Ramsey, but I never see a good answer:
When is something an “emergency”? Meaning, when should you tap into that fund? Obviously a sale at Target or NFL playoff tickets are not emergencies, but what about, say, your dog/cat needing to go to the vet because they swallowed something? Or if your car breaks down and you need a rental car? I just am curious when you’d use your emergency fund and what the term “emergency” means to you guys.
And here’s our response:
Such a great question! The “emergency fund” term gets tossed around a lot in the personal finance world, but we rarely talk about what it’s actually used for. For us, it’s pretty simple: we save our fund for absolutely necessary expenses we can’t afford with our existing budget/savings. So even if an “emergency” happens, like an unexpected car repair, if we have money in our budget we’ll use that rather than dipping into our EF. But if our budget doesn’t cover a jelly-bean-stuck-in-Sally’s-nose emergency doctor’s bill (which, fingers crossed, will never happen), we’ll happily dip into our emergency fund. Pretty much any necessary, absolutely must-spend, unexpected expense that we cannot otherwise afford is worthy of the money in our EF.
Sometimes when an unexpected expense arises, Johnny and I might opt for saving a little less in a given month instead of dipping into our emergency fund. If we have the money readily available and we’re not aggressively saving toward something specific, we’d prefer not to touch our emergency fund. That said, if we were working hard at paying off debt, we would not cut back on our debt repayment just to avoid using our emergency fund. It’s all about priorities, and an emergency fund is there to help us stay on our path to financial freedom.
Once we’ve used some of our emergency fund money, it’s key to remember to build it back up to its original balance. It might take a month or two or ten, but make it happen. Because, hey, you never know when a honey badger will tear through your house and destroy everything. Kidding, unless that’s a real thing, in which case, sorry that happened to you. But really, crap happens, unfortunately, so best to be prepared.
Lastly, don’t ever feel guilty or frustrated about using the money that’s in your emergency fund. That’s what it’s there for! Be proud that you were able to save it up in the first place and use it for its intended purpose.
Those are our thoughts, friends. Do we see an emergency fund the same way you do? Anything else you’d add to our response?