Having an emergency fund is very important and means that you can ward off and survive a possible financial disaster but, the moment you choose to use your emergency fund is very important. The 3 criteria that can help you decide when to dip into your emergency fund are that
1. Something Unexpected Has Happened
An emergency must be unexpected for you to dip into your emergency fund. Something unexpected to give a few examples can be that you have to leave your present accommodation and find alternative housing really quickly. It can be that you find yourself with no job or holding a payment contract that has not been honored and there are important payments due. And it can be meeting payment costs for a family member that is suddenly at death’s door.
The unexpected is not your child’s quarterly school fees, your car’s road tax or the insurance. This is simply because annually recurring expenses do not count as unexpected as they come at no great surprise. In fact, these are amounts that are never going to be suddenly so vastly different from the last quarter and you should be budgeting for them anyway.
2. It is Urgent
You must learn to determine when something is urgent. Dipping into your emergency fund because there is a mark down on the latest appliances is not urgent. It may be a good deal but if the appliance you have is still working well, then desist from dipping into your fund.
A good reason for having an emergency fund is that it provides you with peace of mind by knowing that if an urgent expense is required you can dip into this fund. It is not for going on a shopping spree. If your TV is still working and the cooker has a working oven and working plates; there is no urgent need to replace them.
Your emergency fund is for urgent expenses only.
3. It is Necessary
Sometimes the situation can be unexpected and urgent but ask yourself if dipping into your emergency fund is necessary. It may not be and so it may be wise to check if the expense is absolutely necessary. For instance your car needs a repair or your laptop has broken down or has been stolen. If there is alternative transport or you can borrow or use a laptop belonging to a friend, your work place or an internet café then do not make this unnecessary expenditure.
However, if you cannot find an alternative and can’t get to do your work without a car or laptop or whatever it is that is suddenly unavailable make the expense because this is an expense that is a necessary one.
It should go without saying it that an expense is not necessary simply because you really want it or there is a good deal going. Before you dip into your fund, you must remind yourself that you didn’t work hard to build up your emergency fund just to fritter it away buying things you want or things that go on sale.