Don’t Tap Your Emergency Fund Unless You Have No Other Choice

Don’t Tap Your Emergency Fund Unless You Have No Other Choice

A solid emergency fund is a cornerstone of sound financial health. But once you’ve built it, it’s easy to use it for minor crises, instead of full-on emergencies.

Photo by SteveWoods (Shutterstock)

Trent at The Simple Dollar warns against dipping into the emergency fund unnecessarily.

Let’s say your car breaks down and you’re facing a $US1000 repair bill. Ouch.

You’re probably going to ask the repair place if they have some kind of instalment plan to pay for the repair. You’ll also probably tighten up your spending for a while, cutting back your Starbucks stops and your meals at restaurants and your entertainment spending.

Those are healthy responses to a crisis. The thing is, with an emergency fund, most people won’t bother. They’ll just tap their emergency fund, pay off the car bill, and keep moving along as though nothing has changed.

While an unexpected bill like this might rightly be considered an emergency, you should stop for a moment and try to come up with an alternate plan to pay for it, if at all possible. Your emergency fund should be untouchable unless you’re hit with a bill that you literally can’t afford to pay. Catastrophic medical bills or a sudden lay-off might warrant breaking the seal on the emergency fund, but something you can pay off with a few lifestyle tweaks does not.

When you only use your emergency fund exclusively for major disasters, you might also be able to get by with a smaller one, and use the savings to pay down debt or bolster your portfolio.

Relying Too Much on an Emergency Fund [The Simple Dollar]


  • While I understand your point (the less money you spend the more money you have.. derp), it seems like a very simplistic view.. Hell, many financial planners would argue against having any cash sitting around at all, devaluing itself at a rate of 5-8% per year..

  • Unless you have zero debt, then the advice to have 3 – 6 months income in an emergency fund is probably beyond most people! I have $1k in cash and know that for an emergency bigger than that I can rely on shares, mortgage redraw or credit cards (if desperate)

  • The definitions of “minor crisis”, “emergency” and “emergency fund” are pretty nebulous here.

    For real emergencies (house destroyed, serious illness, etc.) there is insurance (you can self-insure).

    Really go into debt or pay interest on $1000US with no car (assuming there aren’t transport alternatives)? I’d be hitting the emergency fund (cash reserves) first.

    @mt, I am debt free, own a house, and have about 4 month’s income in a cash account (as well as my superannuation). Beyond most people? Nup.

    @michael_debyl, “many financial planners” would give you all sorts of stupid advice, easy for them to do that when its your money and not theirs.

    • Sure, they basically just do whatever. They only really studied the theorems on which their work is based for years to throw it out the window, really.

      aka – nobody is saying they’re perfect, but the theory i’m talking about is quite well regarded, and inflation devaluation is a pure fact. So go ahead and keep sitting on your money if you want and dissing “the man”. Good luck with that.

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