Use your emergency fund, but follow the rules
My husband and I just completed Baby Step 3, and we have six months of expenses saved for an emergency fund. How should we determine when something is actually an emergency?
Congratulations on doing the work, being disciplined, and saving like crazy! Now youíve got peace of mind, and a pile of cash, that will help turn an emergency into nothing more than an inconvenience.
Thereís no shame in using your emergency fund if you really need to. Thatís what itís there for. Just remember to ask yourself a few questions anytime something pops up to make sure youíve got a real reason to use it.
Is the expense really unexpected? Christmas happens on December 25 every single year. You know your semi-annual car insurance payment is coming, too. Make sure things like this are part of your regular, monthly budgets. Some examples of unexpected expenses might be a job loss or pay cut. Emergency medical expenses and car accident repairs might fall into this category, as well.
Is it absolutely necessary? Most people say they know the difference between a want and a need, but thatís not always the case. Replacing your only mode of transportation would be a need. Upgrading to a newer, fancier car is not. If your car goes down for the count, you need transportation. Use your emergency fund to buy something affordable and reliable you can pay cash for. But donít dip into it just to upgrade your decent car for one with a million bells and whistles.
Is it urgent? Practice the art of patience whenever possible. If your homeís air conditioning unit goes out in the middle of summer, thatís probably an urgent fix. But hearing about the ďsale of the centuryĒ at your favourite retail store? Grabbing the newest, hottest mobile phone when yours works just fine? Nope!
Your emergency fund is all about long-term security, not instant gratification. Donít blow it impulsively, but donít be afraid to use it when itís really needed. Be wise, and ask those three questions. Check yourself so you donít wreck yourself ó or your budget!
Dave Ramsey is CEO of Ramsey Solutions. He has authored seven bestselling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.
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