Life is full of surprises. And sometimes those surprises come with problems that require money to resolve. It can be difficult to accumulate the recommended three- to six-month’s worth of emergency savings. Giving up wants and instead saving up for needs takes a lot of discipline. So it’s understandable that you may be hesitant to tap your emergency savings fund. You’re likely thinking about all the hard work and sacrifice it took to save up the money, and how you’re going to have to take cash out and start saving all over again.
On the bright side, be happy you have funds available to withdraw and that you don’t have to rely on credit. Sure, it’s hard to see your savings account balance dwindle, but you’ll remain financially healthy in the long run. Financial emergencies are not pleasant, but it says a lot about your money management skills when you’re prepared to weather the storm. Here are three situations when it’s OK to tap your emergency savings account.
1. Job loss
One of the main purposes of an emergency savings fund is to help bridge the gap following an unexpected emergency such as the loss of a job. This is definitely the time when you want to tap your emergency reserves. It can take a few weeks before you receive your first unemployment check, so the money in your emergency savings can help you meet basic expenses until you find steady employment.
Health emergencies have a way of depleting your cash in the blink of an eye. The cost of medication, copays, and travel to and from doctor’s appointments can add up in no time. If you do not have a Health Savings Account or a Flexible Spending Account, your next option would be your personal emergency savings fund. Know that if your medical costs exceed 10% of your adjusted gross income, you may be able to write off qualifying expenses.
3. Home and car repairs
Do you have leaky roof? Is your car in need of major repairs? Then it’s time to use your cash reserves. Housing and transportation are basic needs that must be addressed in a timely manner. You should not feel guilty about withdrawing money for basic needs. Saving up for these costs will put you ahead of the game. A recent study by Bankrate found that only 38% of Americans are financially prepared to handle an emergency room visit or an unexpected car repair.
Know what’s not an emergency
There will be times when you are so desperate to buy something that you’ll confuse needs with wants. If you’re ever in a place where you’re trying to convince yourself that you need to make a purchase, it’s probably a want disguised as a need. Don’t trick yourself in believing that you need another tech gadget or a new clothing item when your desk is overflowing with tech toys and your closet is bursting with the latest fashions. Always do an honest “gut check” and make sure that what you are buying is really necessary. Your wallet will thank you for it.