When Should You Tap Into Your Emergency Savings Account?

Written by , May 28, 2013

When Should You Tap Into Your Emergency Savings Account?If you’re following sound financial advice then you’ve built up a good-sized emergency savings account. And you’ve resisted the temptation to use this fund for splurges like a vacation or a new car. But you may have asked yourself when exactly it makes financial sense to go ahead and tap into that emergency savings account.

In general, you should be comfortable using your emergency savings for expenses that fall outside of a well considered budget plan. Even the best planned budgets can be hit with something unexpected.

Here are some examples of situations in which it would likely make sense to withdrawal funds from your emergency fund.

  • For Medical Emergencies. Everything flows from you and your family remaining in good health, because if you’re sick or injured then you’ll be unable to work then everything can go downhill from there. Even with recent changes to the Affordable Care Act, emergencies can still creep up on even the most proactive family. medical emergencies may easily justify dipping into your emergency savings account. However, if you find that you’re regularly paying for medical expenses from your emergency fund, then you should probably re-examine your healthcare coverage and consider opening a medical savings account or health savings account if that’s an option.
  • When You’re Between Jobs. When you find yourself out of work or otherwise between jobs, it may at some point become necessary to use what you’ve accumulated in your emergency savings account. But as soon as you’re out of work you should adjust your budget to cut expenses as much as possible to reduce the hit that your emergency savings account takes.
  • To Avoid a One Time Late Mortgage Payment. A single late payment on your mortgage can do significant long-term damage to your credit score, which can end up costing you a significant amount of money in additional interest charges and fees until you can repair your score. If a one time issue with your budget puts you in danger of missing the mortgage payment, then it may be worthwhile to dip into your emergency fund to make that payment. However, if you find that you’re always at risk of paying late, then you need to re-examine your entire budget and make whatever changes are necessary to stay current. Using your emergency fund for this purpose is simply not a sustainable financial plan.
  • To Avoid a One Time Late Student Loan Payment. Similarly, even a single late payment on one of your student loans can result in financial costs significantly greater than whatever late fees or interest penalties you may be responsible for. If you’re on the verge of making a late payment on a student loan, but you’re confident that you won’t make any additional late payments, then it may be worth tapping into your emergency savings account to avoid that late payment. If the late payment is because you’re having overall budget issues, then leave your emergency fund intact and work with your lender to try to come up with a more workable repayment schedule for your loans, or adjust your budget accordingly.
  • Once you take money out of your emergency account, be sure to make it a priority to build that fund back up as soon as possible thereafter.

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