It has taken you months or even years saving money in a way you didn’t realize it is possible. Thanks to your effort, you now have a stable emergency fund in place. But all over a sudden, you are faced with an unexpected expense, and you feel like you need to use your savings.
Before you break that piggy bank or head to the bank to withdraw funds from your savings account, you need to ask yourself hard questions to be sure you are not about to spend your emergency fund unnecessarily.
Keep in mind that some situations may seem like emergencies, but once you examine them carefully, you find ways of dealing with them without dipping into your emergency fund.
Ask yourself the following questions before using your emergency fund.
1. Is the expense truly unexpected?
We must appreciate the fact that life will always throw surprises your way such as an unforeseen job layoff. In such a case, you can turn to your emergency fund to help you maintain your lifestyle until you land your next job.
Also, if a tornado or massive floods hit your neighborhood and you are left homeless, consider using your emergency fund to find shelter for your loved ones.
But, there are lots of other expenses that most of us tend to think they are unexpected when they are not.
For instance, Christmas happens on December 25th every year. You always knew that from the start of the year. Therefore, don’t use it as an excuse to blow up your savings buying gifts for your loved ones.
The same thing applies to your semiannual car insurance payment or back-to-school shopping. The bottom line is that before you start blowing up your emergency fund, be sure you are looking at a truly unexpected expense.
2. Is the need urgent?
The next question you need to ask yourself is whether the situation is urgent. Do you need to handle it right away, or could it be paid in a couple of days or weeks? If your son gets sick and you need to rush them to a hospital for treatment to save his life, then that is an urgent need.
However, if your son only needs a routine checkup and there is nothing serious with him, that is probably not urgent, and you shouldn’t use your emergency fund to settle such cases. Instead, save up for such expenses ahead of time so that you are not caught off guard when they are due.
For genuinely urgent needs, you could even consider topping up your emergency fund savings with a loan from an urgent cash loan Canada lender so that things don’t get out of hand. Once the situation is under control, find ways of paying off what you owe and start building your emergency fund again.
3. Can I find the money I need somewhere else?
Before dipping into your emergency fund, ask yourself whether you have got other options. Do you have a slight room in your budget that you could use to settle the situation? Is there anything in your house you could sell to raise the funds you need? Could you cut back on something like eating out to raise the needed funds?
If you give yourself enough time to think, you might discover that there are better options for addressing the situation other than dipping into your emergency fund.