I think it’s a really good thing we can’t see into the future, because some of us (most of us?) might not want to get out of bed on certain days. Take for instance the year that our car was in the repair shop four times before it was even February. Those repair expenses combined with the price of dental surgery, a hospital outpatient surgery, and an ER visit for a broken arm really played havoc on our family finances. Fortunately our emergency fund was fully funded and allowed us to weather this very expensive and stressful financial storm with ease, and without debt. I’ve shared previously some ideas on building your emergency fund, and why you should do so.
First, you need to set the rules for use of your emergency fund. You should compile a list of expenses which your emergency fund should not be used for and then write this list down. We’ve decided that our emergency fund is not to be used to cover vacations, redecorating, or entertainment. It is to be used for unforeseen medical bills, auto repairs, and housing repairs (including appliance repair or replacement). When we’ve had to use our emergency fund in the past, we’ve immediately begun a replenishment of the fund. Since we are a one-income family, we have a set level we like to keep our emergency fund at. For us our emergency fund is in place to keep us from taking any debt on should an unforeseen expense occur. It is not meant to be a pot of money to access for non-necessary cash outflows. Here are some expenses that would be a good use for the emergency fund:
Medical Expenses Raising four children means there are going to be medical expenses involved. Thankfully most of these have been minimal, or at least minimal enough that we could cover them without tapping our reserve fund. However, expenses like a root canal, broken arm, and an outpatient surgery cost quite a bit more than what we could financially absorb in a month’s time so it was a good use of our emergency fund. We do have orthodontic expenses now, but we are able to pay those bills by setting up a payment plan at the orthodontist’s office that doesn’t include any interest expense or additional fees. If we had to pay for that work all up front, our emergency fund would have to cover it. While we are thankful that we have health insurance through my husband’s employer, we have a very large deductible we have to pay before the plan kicks in. In the years when we’ve had to pay that deductible in full, we have utilized our fund and then set up a plan to repay it back as soon as possible.
Auto Repairs We drive used cars and basically keep them until the wheels fall off. This means that we need to keep our cars in good running condition for a long time. We schedule regular maintenance checkups to try and prevent any major problems but on occasion a big repair bill has come along. It is much less stressful to write a check from our emergency fund than to put the bill on a credit card and worry about making the payment.
Pay Off Debt If you have any debt then you should pay it off immediately. It is justifiable to use your emergency fund, because debt implies interest and thus means that you aren’t really saving anything. The best way to save is to eliminate debt and if you need to delve into your emergency fund then you should always do so. It is important, however, to always retain some cash in case of a more immediate emergency, like a natural disaster.
Make House Repairs When the hurricanes hit Florida back in 2004, we had quite a few house repairs we needed to make. One Summer our air conditioner decided to stop working as did our clothes dryer. Replacing appliances and performing repairs on our home are positive uses of our emergency fund.
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