Reader Mailbag: Emergency Fund

Reader Mailbag

Guess what happens when we get questions from readers? We answer them! So if you have your own question, click here and shoot it off to us. We’ll do our best to get back to you and give you an answer that isn’t totally incorrect.


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?

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  • Reply MomofTwoPreciousGirls May 21, 2014 at 7:55 am

    Those January babies are tough…mine had a woodchip stuck in her nose at about age 3.5 (it was there for a few days and was the size of the tip of my pinky to the first knuckle!). Then at age 5 there was an incident of a corn kernel in each ear. Had to go to the emergency room for those! Fun times!

    • Reply Joanna May 21, 2014 at 11:12 am

      Oh no!! Why are they so darn curious??? Sally puts anything and everything off the ground into her mouth. Luckily, she hasn’t discovered her nose or ears yet, but it’s only a matter of time!

  • Reply TT May 21, 2014 at 8:40 am

    I do things a bit different in that I don’t have a dedicated savings account set aside only for emergencies. Instead, I try to maintain a bit of a buffer in my checking account, and then I am mentally prepared to pirate other savings accounts/goals depending on the situation. I think there are varying degrees of ’emergency’, and depending on what it is will determine what funds I tap to cover it. For example, if it is an emergency room visit, I’m likely to tap excess funds I’ve saved in my HSA. If my car breaks down, I’m likely to tap my 2014 vacation fund (since nothing is planned yet anyways). If I’m paying more than the minimum on my debt, I might scale that back until funds are replenished (assuming no crazy interest rates). Now, if I lose my job and have to subsist until I get a new one, that is a completely different type of emergency. In that case I might get to the point where I would pull out some of the principle I’ve contributed to my Roth IRA (normally a big no no in my book). Too many scenarios to list them all, but the point is we’ve done well without labeling any dollars for emergencies only.

    • Reply Joanna May 21, 2014 at 11:14 am

      Great perspective, TT! We love hearing how others are making it work. It sounds like you guys have a really sound system in place.

  • Reply Rachel May 21, 2014 at 9:17 am

    During the GFC (2008-2009) I was working in a volatile industry (mining) so had a hefty emergency fund, in case I lost my job, which thankfully didn’t happen. The project I was working on was one of the only ones that kept going through the GFC (I was one of only two people in the home office approved to work overtime, everyone else was being dropped to .8 FTE).
    I bought a house in 2010, and whacked my Emergency Fund onto the load, where it is available as redraw, and helps reduce my interest payments.
    So far I’ve managed my budget such that I’ve only needed to touch it once in the last 4 years… I was sent to Panama in 2012 for work (I live in Australia), and the day before I was due to depart my wallet containing my company credit card (and my personal mobile phone) was stolen. I had been supposed to charge all my trip expenses on that card, but they couldn’t issue a replacement before my flight was due to depart, so I sucked a chuck of my Emergency Fund out, paid all my expenses during the trip and put in a whopping expense claim when I got back, then stuck it all straight back into the Emergency Fund.
    Not a ‘typical’ ‘Emergency’ in an appliance failure, car break down sense, but I was certainly glad I had the funds available to access at extremely short notice!!
    BTW, Panama was awesome, even if my Spanish was terrible, and nobody there really speaks much English!

    • Reply Joanna May 21, 2014 at 11:19 am

      Awesome, Rachel. I’m sure you were relieved to have that money at the ready when all hell broke loose on your wallet. Glad you were still able to have a great experience in Panama!

  • Reply Ellen from Ask Away May 21, 2014 at 9:33 am

    I love this post!! I always blog about my budget system and I use a cash envelope so I actually have several emergency funds in there. FOr instance, I have a vet fund… which technically comes in handy for not just routine appts for my 4 dogs but any last minute emergency we have. That way i actually dont take it out of my main emergency fund unless my Vet fund runs out. I also have a car Envelope and I put $20 each paycheck into it. Its great for when something breaks or when Ineed an oil change!

    • Reply Joanna May 21, 2014 at 11:19 am

      Very cool. It sounds like you’ve got a great system in place, Ellen!

  • Reply Karissa May 21, 2014 at 9:41 am

    I think you guys said it perfectly – the emergency fund is there to help out when you can’t move your monthly budget around to accommodate a NECESSARY expense. I’d also add that we weren’t comfortable with Dave’s $1000 E-Fund, so we kept saving until we were both happy with the number before switching over to debt annihilation!

    However, we still try to mitigate dipping into the E-Fund on top of our regular budget, by also planning a savings account for annual expenses. We plan out how much we’re going to spend annually on doctor’s appointments, visits to the vet, new work boots, birthday gifts, etc. over the course of the year, and divide that amount into 12 equal payments. We include extra copays, in case we get sick unexpectedly (*cough – ear infection – *cough cough), as well as an extra visit to the vet in case the cat eats something unnatural. We REALLY hate touching the E-Fund!

    • Reply Joanna May 21, 2014 at 11:21 am

      Smart, Karissa! We weren’t comfortable with only $1000 while we were paying off debt, either! And since then, we’ve built it up for about six months’ worth of expenses. You can never be too prepared!

  • Reply Heather May 21, 2014 at 9:51 am

    My EF is strictly for true emergencies – meaning I’m unemployed and need to cover basic living expenses.

    For expenses that come up occasionally but I know I need to plan for, I have a “planned spending” account in which I set aside a relatively small amount of money in various categories. This covers things like hobbies that require an outlay of money upfront (like fitness classes or sports), vacations, an emergency plane trip home (e.g. a family member dies), bike repair (car repairs if I had one), and home repairs (again, if I had one) etc.

    • Reply Joanna May 21, 2014 at 11:30 am

      I love the extra buffer you’ve created, Heather! That’s a great way to ensure your emergency fund will always be there if ever you *really* need it (fingers crossed you don’t!). 🙂

  • Reply Melinda May 21, 2014 at 1:12 pm

    Maybe I think your use of the EF is amazingly wise because it’s the method we use with our own EF and since we’re 60 years old we’d like to think we’re as smart as you youngsters. Last year when my 2001 Oldsmobile abruptly decided to stop at 310,14 miles (no that’s not a typo), we had more than enough money in our EF to buy a very nice (used) car with cash. Then all we had to do was repay ourselves–much better than repaying some fat cat finance company-much less interest too! We also have another savings account, our “Sinking Fund” for other unpredictable decorating/hobbies/medical events. We also have a separate vacation fund because we adore traveling. Since you’re starting this journey so early in your life, you’ll be way ahead of us when you get to 60! Keep up the good work.

    • Reply Joanna May 22, 2014 at 1:04 am

      I promise it’s the other way around…. your wisdom is above and beyond ours for sure! I love your “sinking fund” idea. It’s always good to be duly prepared for anything!

  • Reply Rob May 21, 2014 at 1:17 pm

    Hi guys!

    Well. in a way we are on the same page with you regarding when to dip into an emergency fund but we have funded it in a different way (a way that few financial bloggers that I’ve read up to now use, except for one other very popular blogger here in Canada).

    To explain –

    Yes, an emergency fund should only be used in time of “emergencies”; otherwise, use any other available method to handle the funding requirement. But, when there is no other choice, then use the emergency fund. And an “emergency” is strictly personal in how any one out there defines the term.

    That said, however, we don’t put money aside into a “safe” savings type fund (which pays low interest). We want every one of our savings dollars to work as hard as possible in earning more $$$ – that’s what investing is all about and that’s how the rich get that way eventually.

    No, instead we use a Line of Credit account as our emergency fund. A LOC has more money available to be used at a moment’s notice, if required, starting from day #1. And, sure, if we ever did need to get emergency $$$ in this way, we know that later we would need to pay interest. A small consideration, all in all, in my mind – why?

    Because: (1) it helps our credit rating to have a LOC, but more importantly, (2) since an emergency fund is meant to be so rarely used (just like an insurance policy claim), we have never once ever had to use it over all these years – at least not yet (touch wood)! 🙂

    Anyway, that’s our take, for what it’s worth to anyone …

    • Reply Joanna May 22, 2014 at 1:06 am

      Very cool. Thanks for sharing your method, Rob! Johnny and I will have to look into it!

      • Reply Melinda May 22, 2014 at 10:10 am

        TREAD CAREFULLY HERE: We tried the LOC idea until we figured out the math didn’t work. Even if our sinking fund savings account only earns a measly 1% or less, at least when we use that money we only lose a measly 1% per month as we repay ourselves. With an LOC, unless you can pay the emergency gazillion dollars back immediately you’re going to pay a bank or any other institution at least 3% or more. It’s like betting you are never going to have an emergency which is never a sure bet. You can improve your credit score in other ways. Just sayin. . .

        • Reply Joanna May 22, 2014 at 2:28 pm

          Thanks, Melinda!

  • Reply Emily @ evolvingPF May 23, 2014 at 11:43 am

    The longer I go without an “emergency” that has caused me to access my EF (7 yrs), the less enamored I am with the idea of an EF for our household. Truly, it is difficult to define emergency. After all, you can anticipate that there will be randomly occurring medical, home, or vehicle expenses and save for those specifically, which is what we have done. I’m inclined to say that true emergencies should only be life-threatening, but I also think home repairs and unemployment should count and that is mostly only lifestyle-threatening.

    Maybe it is personality-dependent. Since we are savers and not in debt, I think I’m settling on the idea of just having tiered savings (some cash-equivalents, some liquid investments) and access to lines of credit. It’s not important to me to define emergency because I trust myself not to use all my savings if not absolutely necessary.

    • Reply Joanna May 26, 2014 at 8:24 pm

      I think it’s perfectly okay and natural for the definition of an EF fund to evolve with time. Like you said, you’re savers and you’re not in debt so an EF fund for you might not be as separate as it is for other people. Thanks for sharing your perspective!

      • Reply Slinky May 30, 2014 at 2:05 pm

        I’m with Emily. Most “emergencies” can be anticipated and the really catastrophic ones should be insured. It also takes about as long to liquidate and transfer money from a brokerage account as it does an online savings account. You should definitely keep a certain amount of cash to hand, and a good credit card with a good limit is helpful for stressful times, but for big things, you can transfer funds or wait for the insurance pay out. Just don’t invest everything you own in emerging markets or something volatile. 🙂

        Also, good cash flow is it’s own emergency fund. The more you can handle without touching savings, the less you need the savings.

        • Reply Joanna June 4, 2014 at 1:56 pm

          Thanks for the input, Slinky!

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