How You Should, Or Shouldn't, Use Emergency Funds

By Jason McDonald

While most of us know the importance of saving money, we may not know how to save for unexpected moments in life. To do this, you should consider building an emergency fund, which can be used to cover expenses for unfortunate circumstances that can't be easily predicted. What do such circumstances entail? Are there others that are deemed less appropriate? Here is how you should, and shouldn't, use emergency funds, as detailed by Robert Jain.

One of the ways to use an emergency fund, according to reputable names in finance like Bob Jain, is in case of a medical emergency. Let's say that, for the sake of argument, that you suffer a broken leg. You may not have insurance, which means that your medical expenses will be considerably high. An emergency fund will allow you to cover most, if not all, expenses, depending on how long you've built this account for.

What if you get into a car accident or your automobile starts to break down? Auto incidents such as these call for your emergency fund to be used. After all, you must ensure that you have a way of moving from place to place. You also want repairs to go so smoothly that you won't have to worry about your vehicle breaking down, at least for an extended period of time. When it comes to your automobile, feel free to use your emergency fund.

Now let's discuss a few ways that an emergency fund shouldn't be used, starting with luxuries. For example, if you're planning on taking a vacation within the year, you shouldn't dip into your account that's used for emergencies. This goes back to the unpredictability associated with them. One must stay focused on their priorities, after all. If the vacation in question remains a goal, slowly save your money over time. Eventually, you'll have enough to justify the expense.

It's also worth noting the possibility of student loans being paid off with emergency savings. Needless to say, this should be avoided. Your student loans should be taken seriously, but this doesn't mean that they should come at the expense of funds used typically for medical reasons, unemployment, and other unfortunate events in life. Slowly save the money that you make, before funneling it into your student loan payments. Before you know it, your loans will diminish.

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For more fiscal guidance, please consult Bobby Jain.. This article, How You Should, Or Shouldn't, Use Emergency Funds has free reprint rights.