When Should You Use Your Emergency Fund?

Emergency funds are an essential part of any financial toolkit. We can never predict the future, but preparing for any eventuality with reserve funds is always a good idea, no matter the situation.

Despite this, it isn’t always clear what constitutes an ‘emergency’ worthy of dipping into those hard-earned funds. It can be tempting in many circumstances to spend rainy day money when conditions are overcast at best.

So when is an appropriate time to use your emergency fund, and in which everyday situations should you avoid dipping into the pot unnecessarily? This helpful blog will explain the dos and don’ts of emergency money.

What should I use my emergency fund for?

Emergency situations are, by their nature, unpredictable. Nobody knows what tomorrow will bring; you may lose your job or require an unexpected surgery that keeps you from working and earning money for a few months. Everyone’s financial situation is unique, which can make deciding when to use emergency funds less than straightforward.

While using your emergency fund is entirely at your discretion, there are plenty of clear-cut examples where using the money you’ve saved will be appropriate. Here are a few common examples that Americans may face in their lives.

Unexpected medical bills

Even with comprehensive medical insurance, you may still find that your policy will leave you liable to face deductibles, co-pays, or uncovered medical procedures. In 2022, the average American paid $1,425 for out-of-pocket healthcare expenses.^[1]

If a medical emergency requires urgent care, it can result in unforeseen medical costs and can often require follow-up care. An emergency fund can help bridge the gap and prevent medical debt.

Sudden loss of income

The workforce disruption caused by the COVID-19 pandemic showed that sudden job losses can happen to any person in any industry. While the unemployment rate in the U.S. has returned to 4% in 2024, it is still a good idea to prepare for any eventuality.^[2]

A job layoff, illness, or other event can leave you temporarily without income. Your emergency fund can cover essential expenses while you search for a new job or recover.

Major home and auto repairs

Many Americans’ most valuable asset will be their house or car. They are impossible to live without, so it becomes essential to repair them if something goes wrong. Appliances break down, roofs leak, and cars need repairs at the most inconvenient times.

With the average auto repair costing around $548,^[3] and home repairs at around $1,667,^[4], an emergency fund can be a life-saver should you or your family be faced with an unexpected home or auto repair bill.

Essential living expenses

When faced with an emergency financial situation, it is easy to focus on the expense itself. However, it is important not to overlook your month-to-month living expenses during these times. Essential living costs, such as rent or mortgage payments need to be covered, so it is a good idea to use an emergency fund to cover these costs in the event of an emergency.

What should I not use my emergency fund for?

There are plenty of valid reasons to use emergency funds. However, it can also be tempting to use the money in less urgent circumstances. Remember that emergency funds are all about saving for the worst-case scenario, and shouldn’t be used for anything less. Below are some common examples of everyday expenses where emergency money should not be used.

Everyday expenses & discretionary spending

Using an emergency fund for everyday expenses defeats the purpose of saving for a rainy day. In normal circumstances, you should be able to budget for all living costs and expenses using your regular income.

Daily living costs such as groceries or transportation should be covered as part of this. Concert tickets, nights out, or impulse purchases shouldn't come from your emergency fund. These are luxuries, not necessities.

Investments

The goal of an emergency fund is easy access to cash. The Consumer Financial Protection Bureau (CFPB) recommends keeping rainy-day savings in a dedicated bank or credit union account.^[5] Treating this money as separate from other investments you may be funding is a good idea.

While it may be tempting to use investment savings as an emergency fund, it is recommended that you avoid this, as investments can be volatile; you might not be able to access the money when you need it most.

Planned expenses

It might be appealing to use an emergency fund on a ‘nice to have’ expense such as a vacation or non-essential home improvement, but you should avoid using rainy day savings for purchases like these. Luxury expenses are therefore better suited for a separate savings plan, which would allow you to pay for the things outside your day-to-day expenses while continuing to save for an emergency fund.

Debt repayment (usually)

Addressing high-interest debt before starting to develop an emergency fund is always a good idea, as removing this will increase your capacity to save for the future. Despite this, you should avoid repaying long-term debt such as student loans or auto loans with an emergency fund.

However, if missing an essential bill payment would have severe consequences (e.g., eviction, car repossession), then your emergency fund may have to be used as a ‘last-resort’ solution.

Regular car maintenance

While it is a good idea to use some of your emergency funds to cover an unexpected auto repair, such as a breakdown or a broken part, regular auto maintenance is an expense that should instead be budgeted as part of your financial management.

Budgeting for regular maintenance will prevent surprise breakdowns and the need to use your emergency fund.

How do I know if you need to use your emergency fund?

The CFPB recommends that emergency savings be used for small or large unplanned bills or expenses that are not part of your routine; this includes home or auto repairs, medical bills, or sudden loss of income.^[5]

When considering whether to use your emergency fund, it is a good idea to consider all of your financial resources. According to a Bankrate survey, more than a third (36%) of U.S. adults say their credit card debt outweighs their emergency savings.^[6]

It is important to avoid using credit cards for emergency expenses where possible. While it can be difficult to use hard-earned savings when faced with a surprise charge, using them appropriately will leave you with less debt than using credit.

Overall, you should consider using your emergency fund if the expense you need to pay is unexpected and threatens your ability to cover essential living costs for you and your family.

Sources

1. Health System Tracker, "How has U.S. spending on healthcare changed over time?" https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/
2. Bureau of Labor Statistics, "The Employment Situation — May 2024" https://www.bls.gov/news.release/pdf/empsit.pdf
3. Kelley Blue Book: "Here’s How Much the Average Car Repair Costs" https://www.kbb.com/car-advice/average-vehicle-repair-costs/
4. Angi: "The State of Home Spending in 2023" https://www.angi.com/research/reports/spending/
5. Consumer Financial Protection Bureau, "An essential guide to building an emergency fund" https://www.consumerfinance.gov/an-essential-guide-to-building-an-emergency-fund/
6. Bankrate, "When should you spend your emergency fund?" https://www.bankrate.com/banking/savings/when-to-use-emergency-fund/

About the author

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

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