If you’ve been considering growing an emergency fund, you’ve likely had the thought: what is an emergency fund really used for? Is it for late-night taco runs or when the car breaks down?
You’re not alone – it can be tough to decide which financial burdens fall to your emergency fund and which belong elsewhere in your budget. If you pull from your emergency fund for non-emergencies, then you could drain the whole thing before a real emergency comes along.
Luckily, Lasso is here to help. We’ve outlined the major reasons why you might need to dip into your emergency fund, and what to do once the deed is done.
What is an Emergency Fund?
An emergency fund is your own personal safety nest against unexpected financial stressors. It’s a way to access money lickity-split in case of, well, an emergency. Building an emergency fund is the first step toward getting your finances in order.
You may be on track to meet your financial and life goals, but one emergency could derail all your progress and set you back to ground zero – an emergency fund acts as insurance against those situations.
You might wonder if you really need one in the first place – after all, you’ve got a clean bill of health and your home is in top-notch condition. But emergencies come in all forms – car accidents, furnace going out, medical emergencies – and no one is immune. When and if lightning does strike, you’ll be grateful that your emergency fund was there to keep you grounded.
What Should You Use Your Emergency Fund For?
While “emergency fund” does have the word “fun” in it, avoid the temptation to spend it on that brand new phone or an in-home arcade machine. A fully funded emergency fund will typically run between $10,000 and $20,000, and it can be hard to resist pulling from it.
But if you pulled money from your emergency fund whenever you wanted, that would defeat the purpose of the emergency fund in the first place. So what should you use it for?
Even if you feel totally secure in your employment, outside factors can influence your job in ways you never could have predicted. For instance, take the Covid-19 pandemic, in which an estimated 9.6 million Americans lost their jobs.
Losing your job is a major financial setback for anyone using their income to cover living expenses. How will you pay for food and housing? What about the internet you need to search for a new job? And don’t forget about the wardrobe refresh you’ll need for those interviews.
A fully funded emergency account should be able to keep you afloat for three to six months in case of a sudden job loss, giving you time to secure new employment before it runs out.
If you live in a car-dependent area, your car is probably your lifeline to the outside world. It’s how you get to and from work, doctor appointments, the grocery store, and even your favorite sushi bar. For many, life without a working vehicle just isn’t realistic.
So when ol’ Bessy doesn’t start up one morning, you’re probably feeling the panic kick in. You need to get ahold of the mechanic, set up a rental vehicle, and figure out what role your insurance company will play when it comes time to write the checks.
Lucky for you, your emergency fund is rolling into the shop right by your side to help you (and ol’ Bessy) figure it all out.
Medical expenses can pop up even for those with a clean bill of health. Whether it’s a tumble down the stairs or something more serious, you definitely don’t want to be stressing about bills while you’re recovering.
An emergency fund is a key part of your medical care – keeping you afloat as you take time off work, pay for prescriptions, or cover any other health-related expenses.
If you’re a homeowner, then you likely know that all repairs and maintenance fall directly on your shoulders.
You might think that homeowner’s insurance would cover any sudden home repairs, but keep in mind that you likely have a deductible you’d have to pay before that insurance would kick in.
Furthermore, there are probably home maintenance costs your home insurance doesn’t cover, like earthquakes or your weird Uncle Jimbo accidentally falling through the kitchen window.
Medical emergencies extend to your four-legged family members, too – and they likely don’t have as good of an insurance plan as their bipedal caretakers.
You would do anything for your pets, right? That includes keeping your emergency fund updated and ready for whatever those little furballs may need.
Remember to Reimburse
Keep in mind that once you make use of your emergency fund and get back on your feet, you’ll need to replace the money spent to keep the account fully-funded. This might mean cutting back on your spending money for a few months or otherwise rearranging your budget.
Whether it’s acute appendicitis or the spontaneous combustion of your vehicle, you’ll be happy to have an emergency fund in place to keep you on track for your financial goals.
Grow Your Emergency Fund with Lasso
Ready to get your emergency fund off the ground? Lasso can help. Click here to download Lasso today and start saving toward your goals.