What you should use an emergency fund for: Six top expenses

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Devin Miller
October 4, 2023

When life throws you a curveball — whether it’s a car breakdown or a sudden medical expense — having an emergency fund can feel like having a financial superhero in your corner. Think of an emergency fund as your personal safety net, there to catch you when unexpected, urgent costs come your way. While it feels great to have this superhero to back you up, it’s equally important to understand what an emergency fund should be used for, and when it doesn’t make sense to dip into it. Here are some of the most common financial emergencies that require using your emergency savings.

Covering unexpected medical expenses

Medical emergencies can create significant financial strain. When an unexpected medical bill comes up, a well-funded emergency savings account can help you take care of that expense without falling into debt. For example, if your spouse has a serious car accident that requires immediate hospitalization or surgery, you’ll be facing urgent expenses to pay for their care. 

With emergency savings, you’ll have funds to pull from to help you navigate through these challenging times without worrying about the financial burden. Other types of unexpected medical expenses might include:

  • Acute illness like appendicitis or heart attack
  • Unplanned surgeries for a suddenly worsened medical condition 
  • Flare-up of a chronic condition requiring intensive treatment or hospitalization
  • Mental health crisis requiring psychiatric care, including inpatient treatment
  • Complicated childbirth that inflates standard labor & delivery costs
  • Dental emergency like a broken tooth or severe infection 
  • Long-term illness like cancer 
  • Elderly care for an older family member

Navigating job loss or income disruption

Losing your job or facing an unexpected reduction in your income can have a significant impact on your financial stability. When that stability is rooted in your employment, confronting unemployment can be incredibly stressful. It's during these times that an emergency fund proves to be invaluable. However, it’s also important to explore additional resources that may be available to you, including:

  • Severance from your former employer. If the company doesn’t offer it to you, can you negotiate with HR for a severance package?
  • Unemployment benefits. Find out what type of unemployment benefits you may be eligible for through your state and apply for them right away.
  • Health insurance subsidies. If you’re losing insurance coverage, begin the process to apply for government-subsidized health insurance through the Health Insurance Marketplace or state-run marketplace where applicable.

While you pursue these efforts, your emergency savings can provide you with the necessary funds to cover essential expenses as you also search for a new job and work to get back on your feet. Plus, with the extra cushion from your emergency fund, you’ll have a little more breathing room to focus on finding the right job fit rather than accepting any opportunity out of desperation.

Paying for urgent home or vehicle repairs

Unexpected repairs for your home or car can disrupt your finances if you’re not prepared. Whether it’s a leaky roof, a malfunctioning air conditioner in the middle of summer, or a car breakdown, these unexpected costs can quickly add up. By having an emergency fund, you can address these repair costs promptly and avoid going into debt or sacrificing other financial goals.

Preparing for unexpected expenses like repairs to your property or vehicle means continually contributing to your emergency fund, whether it’s an employer-sponsored emergency savings account or your own private savings. The most effective way to save is by automatically depositing a certain percentage of your paycheck into your account each month.

Coping with natural disasters

Natural disasters like hurricanes, earthquakes, wildfires, or floods can have a devastating impact on your finances. With 90% of U.S. counties having experienced a federal climate disaster between 2011 and 2021, according to Rebuild by Design, it’s important to take this potential emergency seriously and prepare accordingly.

In such crises, an emergency fund plays a crucial role in covering immediate expenses, including: 

  • Evacuation costs 
  • Temporary accommodation 
  • Basic necessities
  • Travel expenses 

Having an established emergency fund ensures that you can take care of yourself and your loved ones during these times of uncertainty. With additional expenses anticipated to fully recover from a disaster that may destroy your home or community, your emergency savings will help you cover immediate expenses while you navigate things like insurance claims and governmental aid. 

If you’re in a high-risk zone for natural disasters, it’s important to allocate a portion of your emergency fund specifically for natural disaster preparedness and recovery.

Handling unanticipated travel or family emergencies

Life is unpredictable, and there may be times when you need to travel unexpectedly or deal with sudden family emergencies that come with unanticipated costs. Some potential scenarios might include:

  • Unexpected funeral. The sudden death of a family member can require immediate travel for the funeral, including flights, lodging, and other associated costs.
  • Family illness. A severe illness in the family might necessitate traveling quickly to be with loved ones, incurring last-minute flight and accommodation costs.
  • Family job loss. The loss of employment by a family member may require urgent travel for emotional and logistical support if they’re forced to make major life changes.
  • Elderly parent care. A medical emergency or deteriorating health of an elderly parent can result in unplanned travel expenses.

Having money set aside in an emergency fund can provide you with a sense of security and financial stability during these difficult situations. 

Avoiding debt and financial stress

One of the primary benefits of having an emergency fund is being able to avoid accumulating more debt. By having enough money saved in your emergency fund, you won’t have to use credit cards or take out loans to cover unexpected expenses. This not only helps you avoid high-interest debt but also reduces your financial stress

Ensuring that you have a well-funded emergency savings account is the first step in preventing this type of stress and ensuring your long-term financial well-being. Make sure you have a clear strategy in place to continue adding to your fund on a minimum monthly basis. Also make an effort to balance your emergency savings strategy with your other financial goals in a way that makes sense for your circumstances.

With a solid financial safety net in place, you’ll enjoy greater peace of mind and be able to navigate through unexpected situations with more confidence.

Making the right decision to use your emergency fund

These six common emergency expenses are a useful guide to help you decide what your emergency fund should and should not be used for. Keep in mind that other unanticipated expenses could arise that aren’t on this list, and use your judgment to determine whether they truly represent an urgent financial need. Before dipping into your emergency savings, always ask yourself whether there’s another recourse to cover those expenses. 

The care you take in protecting your emergency fund will only help strengthen your financial stability over time. Start building your emergency fund — with the help of your employer, if possible — and begin securing your financial future.

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