Five Situations Where Its Okay To Dip Into Your Emergency Fund
We spoke to a financial planner to understand which are some situations where it is better to use the emergency fund and replenish it later.
An emergency fund is one of the earliest envelopes where people start stashing savings into. As the name explains, this fund can be set apart to provide cushioning against unexpected events, expenses and more.
Dipping into this fund is a clear no when it comes to buying an extra luxury bag or a high-end sneakers. There are spends that might be a little grey to take a call on, when it comes to dipping into the emergency funds.
We spoke to a financial planner to understand which are some situations where it is better to use the emergency fund and replenish it later.
Situations When Its Best To Use The Emergency Fund
Firstly, Vinit Iyer, principal officer and managing director of Prudeno Wealth Advisors, warns us that every unexpected expense does not warrant dipping into this fund.
An unexpected vehicle breakdown is a classic case. If your car is essential for your daily commute or work, a major or sudden repair isn't something that cannot be skipped.
Similarly, an unexpected tax payment that wasn't accounted for in the annual budget can be a large sum one is not easily prepared to pay. Using your emergency fund to cover this non-negotiable obligation prevents more complications like high-interest debt.
A sudden medical emergency is the most critical use of an emergency fund. Whether it’s hospitalisation or an urgent procedure, these costs can be substantial and are exactly what this fund is intended to cover.
Iyer also cites sudden hometown travel due to a family emergency as another valid reason. These trips, often unplanned, require immediate funds for flights and other expenses.
Finally, a delayed full and final settlement from a previous job can cause a temporary cash crunch when switching jobs. Using the emergency fund to bridge this short-term gap ensures your bills are paid while waiting for the final payout.
This is all why its important to build an emergency fund that will comfortably cushion one against unavoidable but hefty bills or unexpected expenses. After using some of the savings for these purposes, its also important to replenish the funds going forward.
