THE UPS AND DOWNS OF YOUR EMERGENCY FUND

WHAT IS AN EMERGENCY FUND?

An emergency fund is a savings account that is to be used only in the case of an emergency. Generally, most experts says that it’s a good idea to have approximately 3 to 6 months saved in an emergency fund. If you have a job with a high risk of a layoff, or if you or a family member has a severe illness, you may decide to keep your emergency fund on the higher end. Having an emergency fund helps keep you out of debt because you are not reliant on a credit card when an emergency comes up that you cannot afford to pay for in your regular budget.

Saving for an emergency fund is an important and exciting goal. Unfortunately, the emergency fund goal is not a one-and-done type goal. Often emergencies occur while you are originally working on this goal, which will set you back on your progress. And once your account is fully funded, emergencies will happen again which will keep bringing this goal back!

PULLING FROM YOUR EMERGENCY FUND

When something occurs that causes you to have to pull from your emergency fund it can cause mixed emotions. On one hand, you will feel really grateful that you have the money in your emergency fund to cover the expenses for whatever situation has arisen. Especially if you are new to having an emergency fund, it’s a great feeling to not have to use an emergency credit card to cover the cost of an unexpected situation. Having an account with cash that is easily accessible to cover these expenses takes away the additional stress often added to an already difficult situation. However, while feeling very grateful for having money to handle your emergency, you can also feel some discouragement.

When you have worked really hard to save up your emergency fund it can feel discouraging to see the balance decline when you actually have to use it. It often takes a good amount of time and energy to fully fund an emergency fund. While we know the reason it’s there is to cover the cost of emergencies, it’s still difficult to see money get taken out of it.

REPLENISHING YOUR EMERGENCY FUND

Once you have had to use money from your emergency fund it will be important to replenish the account as soon as you can. Your replenishment plan will depend on the type of emergency you had and the amount of money you had to take out. Most important is to be taking whatever steps you are able to take to put money back into the account. If you can only do a little bit at a time, then do that. It’s important to work at getting it back to the amount you had originally determined should be held for emergencies.

If you had a major emergency that took most or all of your savings, it will be a lot more difficult, and sometimes not possible at the current time to replenish it. Coming up with a plan for the future when you can start funding the account will be helpful. It can be very difficult to see your emergency fund balance decline.  However, it’s important to remind yourself how much better a position you are in than if you didn’t have that money set aside.

REMIND YOURSELF THERE WILL BE UPS AND DOWNS

One of the unfortunate parts about having an emergency fund is that you will need to use it over time. It’s good to keep in mind that emergency funds are set up so that they can be used when needed. Likely, you will need to access money from your emergency funds many times over the course of your life. It’s a good idea to accept that you will probably never really be done with funding your emergency fund. Unless you are extremely lucky, you will take money out and then have to replenish those funds.

When the time comes that you need to put money back into your emergency fund again, you will likely have to reallocate funds from something else you may have been saving up for. This can get frustrating. Remembering this is very likely, it might make it a little bit easier to accept. It can be a good idea to plan for emergency deposits in your budget. Then you can reallocate them to other goals if they are not needed. That way you won’t feel like you are having to pull from your other goals, you will be adding to them if you do not end up needing to add funds to your emergency fund.

ASSESS THE EMERGENCIES THAT OCCUR

There are many different things that can occur to cause us to use our emergency funds. Think about the things that you have had to pull from your emergency fund for. Are the emergencies things that occurred maybe something you could do to prepare for separately.

Do you have an older car that seems to need a major repair every year? If so, while it’s an emergency in that you don’t have funds to cover the cost.  And you might not know exactly what the repair will be. But, if it is pretty likely that you will need a major repair each year, it might be a good idea to set up separate savings for that cost. This will help lessen the number of times you need to pull from your emergency fund. So, just take the time to consider the things you have had to pull money out for and determine if there was a better way to have been prepared for those things.

REMEMBER YOU ARE PAYING YOURSELF BACK

It can be frustrating to feel like your emergency fund can be the goal that never really gets completed. Just try to remind yourself how great it feels to know that you have funds available to deal with an emergency when it comes up. If you had an emergency without an emergency fund, you may have needed to use a credit card or take a loan. In that case, you would have had to pay back that credit card or loan, plus interest. You would also have some type of minimum payments to make. When using the funds from your emergency fund, you still need to pay the money back. However, you can do it on your own terms with amounts and timing that works for you. And there is no interest to pay! Paying yourself back is so much better than having to pay back someone else.

Thanks so much for checking in! If you would like to hear the podcast version of this topic to check out Lola’s Frugal Life Podcast! Also, be sure to check out my other blog posts on this site!

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