4 Rules For Using the Money in Your Emergency Fund

Joanne Poh



So you’ve dutifully saved up the requisite 3/6/12 months’ worth of your monthly expenses, and proudly put it aside in your “emergency fund”. Now the question is: when can you actually dip in and touch the money in your emergency fund?

If you run out of spare change at the games arcade and need another $10 to recharge your Timezone card, should you really be dipping into a stash of money that’s supposed to be there to save you if you get into a medical emergency? The thing is, if you use your emergency fund for frivolous nonsense, when a real emergency happens you’ll be left high and dry. Here are some criteria that must be met before you can reach into your emergency fund.


It must be absolutely necessary

If you’re the kind of person who has trouble distinguishing between needs and wants, think twice before you reach into your emergency fund. Ideally, you should only use the money on something that’s absolutely necessary—and no, having to buy a new pair of shoes because none of your existing ones match that new dress does not count as an emergency.

In order to decide just how necessary it is that you get hold of that money, ask yourself what the consequences of not paying are. If you’ll get into trouble with the law, have debt collectors banging on your door or face bankruptcy, you have the green light to dip into your emergency fund.


It will cost you more money if you don’t pay

It may not be a life or death situation, but if you’ve got bills that will cost you more money if you don’t pay them, it’s probably a good idea to pay them now before they escalate into a real emergency. The most obvious example is credit card debt. The longer you take to pay it off, the more it balloons. And it balloons pretty damn quickly, thanks to compounding interest. It might not be an emergency now, but if you wait a couple of months it will be.

Any debt that carries interest or could get you slapped with a fine can be paid off with your emergency fund money, unless there are more pressing concerns you need to use that money to resolve, like a medical emergency.


It will hurt your credit

Once your credit score is hurt, it can take some time to bounce back. And if something serious happens, like you default on a loan, it could be a very long time before you’re able to get another one thanks to a wrecked credit score.

While a trashed credit score won’t exactly have you lying in your grave (yet), if you can prevent it by using your emergency fund and don’t have an actual life or death situation on your hands that needs those resources, it’s probably a good idea to do so immediately, before the situation gets worse or your debt spirals out of control.


It’s urgent and unplanned

Just because you’ve read all of the above doesn’t mean you can now leave everything to the last minute, knowing that your emergency fund will be there to bail you out. You should only use your emergency fund for something urgent and unplanned—meaning you did not have time to save up for it.

This means that when you use your credit cards to pay for that Japan-made blow up doll you really can’t afford, you’ve got the entire month to scrimp and save to pay the bills—rather than resorting to taking money from your emergency fund.

Have you ever used the money in your emergency fund? Tell us what happened in the comments.

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.