Good Reasons to Spend Money from Your Emergency Fund Having some spare cash stashed away in the form of an emergency fund is one of the fundamental principles of personal finance.
If you have dependents who are dependent on your income or if you are concerned about the security of your job, you should have a larger emergency fund; however, if you have a spouse or partner whose income can help carry you through a job loss, you should have a smaller emergency fund. Financial advisors typically recommend having three to six months’ worth of expenses set aside for unexpected events.
James Lee, a financial planner based in Saratoga Springs, New York, notes that “needs, desires, and wishes” are all topics that come up over the course of financial planning conversations. “The purpose of the emergency fund is to ensure that you will always be able to meet your responsibilities.”
You should put money aside for unexpected expenses in a liquid account that’s easy to get to in case of an emergency. Lee suggests opening a savings account with a financial institution in the local area. Additionally, he recommends that you maintain some cash in your house, which you may use in an emergency even if you are unable to get to an ATM or use one.
How and When to Use Your Savings for Emergencies. Good Reasons to Spend Money from Your Emergency Fund
Michael Raimondi, a wealth manager with the Clarus Group, refers to these funds as “peace of mind (POM) funds” due to the fact that they alleviate some of the anxiety that is caused by stressful events. However, if you have built up your POM fund, it can be difficult to determine what constitutes a legitimate emergency situation.
In most cases, the circumstances that warrant drawing from your emergency fund may be categorised into one of two categories: paying bills during a period of income loss or the occurrence of an unexpected, important need.
In order to make ends meet in the event that you have lost all or part of your income
If you have an emergency fund, you won’t have to rely on other, more expensive sources of cash, such as credit cards or borrowing from your 401(k) account, if your job suddenly becomes insecure. Your emergency money can keep you afloat.
According to Lee, “if there is no revenue coming in from employment, you may be required to use money from the emergency fund to meet critical living needs such as housing, groceries, and utility bills.”
- The following are some examples of such circumstances:
- You or one of your spouses loses your job.
- You are unable to perform your job duties as a result of an illness or accident.
- The bonus or commission you were expecting is not as large as it is.
- Your hours at work have been reduced.
- You make the decision to quit a job that you feel is unhealthy or poisonous.
You Have Been Hit With a Unanticipated and Sudden Bill
A second scenario that might call for the utilisation of emergency funds is one in which unexpected and unavoidable costs materialise with no time to plan for them. Even if insurance might cover some or all of these occurrences, you can use the money in your emergency fund to pay for your deductible and tide you over until the insurance payment comes in the mail. These could include the following:
- Medical operations classified as an emergency.
- Dental procedures.
- Mechanical work on a vehicle
- Fixing up the house.
- The national expenses of the calamity.
When You Should Not Use Your Savings for an Emergency
Unanticipated but non-essential expenditures are not often the most efficient method to utilise cash set aside for an emergency. You should avoid using your cash designated for unexpected expenses for things like a wedding in an exotic location or shopping for the holidays.
Before withdrawing money from a savings account for unexpected costs, Raimondi recommends first determining whether or not the expenditure in question is actually required.
“And ask yourself whether there could be a chance to save for this thing instead,” he continues. “And ask yourself whether there might be an opportunity to save.” “Is it something that needs to take place right away, or do I have time to make preparations and save up for it?” Good Reasons to Spend Money from Your Emergency Fund Good Reasons to Spend Money from Your Emergency Fund
What to Do After Using Your Emergency Funds and When to Do It
When you’ve exhausted the assets in your emergency fund, it’s critical to have a strategy in place to replenish the money you’ve spent from that account. In this way, you won’t have to worry about not having the financial resources you require the next time an unexpected event occurs.
You should seriously consider making a regular transfer of money into your emergency fund until it can no longer meet its needs. Good Reasons to Spend Money from Your Emergency Fund Good Reasons to Spend Money from Your Emergency Fund Good Reasons to Spend Money from Your Emergency Fund Good Reasons to Spend Money from Your Emergency Fund Good Reasons to Spend Money from Your Emergency Fund Good Reasons to Spend Money from Your Emergency Fund Good Reasons to Spend Money from Your Emergency Fundv