When it is OK to dip into your emergency fund

Piggy Bank

Breaking into your emergency fund piggy bank can be a tough decision. Image: Flickr / 401k / CC-BY

Good financial planning advice, time and time again, includes the suggestion to have an emergency fund. Having an emergency fund is one step, but when to dip into it can be a more difficult question.

The obvious stuff

An emergency fund is intended for financial emergencies. There are some things that obviously fall on one side or the other of that line. Vacations, new toys, a day at the salon, anything that you do not need for survival or financial health are not considered emergencies. A stay in the hospital, job loss, or home repairs that you had not planned on all count as emergencies for which you could dip into the emergency fund.

The gray area of emergency funds

There are lots of gray-area situations, however, when it can be tough to decide whether you should dip into an emergency fund or not. Examples vary from a medical bill that you might be able to cover with a monthly payment to an automotive repair when you could use public transportation instead. When deciding if you should dip into your emergency fund, consider questions such as:

  • If you can pay the bill without dipping into your emergency fund.
  • If putting the bill on a payment plan would mean paying a significant amount of interest.
  • If paying the bill all at once will result in you over-drafting or over-extending on your everyday expenses.
  • If the expense is something you really need; if it is a purchase that can be put off for a few months and saved for instead.

[An unexpected expense without an emergency fund doesn’t have to be a disaster – Match Financial may be able to help.]

Set your ground rules

If you are just starting to build an emergency fund or have had one for years, you should be sure to set ground rules for your emergency fund. These rules should not only cover how much goes into the emergency fund on a regular basis, but also when it is acceptable to dip into the emergency fund. You should also put the emergency fund in a place that you do not regularly access, to ensure that you have to think twice about dipping into the fund.


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