3 Questions You Need to Ask Yourself Before You Dig into Emergency Funds

I recently went to hop in my car and drive to class. But after walking around in circles for a few minutes clicking the panic button to no avail, I realized: My car wasn’t there.

I didn’t get a decal before the new parking enforcement date in my apartment complex, so my car got towed. And it was going to cost me $175 to retrieve.

I walked to the bank in a panic, feeling punched in the gut as I thought about the looming damage to my emergency fund. That fund had grown over the past few months. It was finally looking good.

I felt so guilty that I didn’t use my emergency fund. I borrowed money from a friend instead.

I got my car back, but it made me wonder: What’s the point of having a rainy day fund if I never feel OK about using it?

To get to the bottom of why I felt so guilty about using an emergency fund for, well, emergencies, I talked to a few financial experts — and they helped me figure out when it’s OK to use emergency funds and when it’s not.

Here’s Why I Felt Guilty About Spending My Rainy Day Fund

First things first: An emergency fund should be separate from your savings.

I know, I know. You’re probably groaning and thinking, “I have to save even more money?! But I barely get by as it is!”

But here’s how Kerri Moriarty, head of company development for Cinch Financial, explained it:

“Your savings are generally tracking toward a goal – like buying a house or taking a dream vacation or saving to start your own business,” she said. “The idea with savings is eventually you will deplete them on the goal you were saving for.”

Considering what she said, it’s clear why I felt hesitant to take money out of my account.

I had been putting a little bit away each week and feeling good about it. I was being financially responsible. Every time my weekly automatic transfer to my savings account happened, I thought, “Look at me! I’m a financially responsible adult!”

But the problem was, all that money was sitting in one account.

Because that account was also my savings, it seemed like blowing a good chunk of it on a stupid towing bill wasn’t worth it. I would have rather spent it on that trip to Greece I’ve been saving for.

By having two accounts, Moriarty says you’re more likely to manage them strategically — and monitor how close each one is to your goal amount at all times.

“Something comes up where you needed to use your emergency savings? No problem – but you definitely want to hit pause on your goal-based saving until you’re able to rebuild the emergency fund. If you keep them together, it’s harder to know exactly where you stand,” Moriarty said.

So What Exactly Counts as an Emergency?

OK, so now you (hopefully) know why you should have separate bank accounts for your emergency fund and your savings. Good job!

But you know when that thing called “life” happens? I know. I just love it too… except when it throws everything into utter chaos and disarray.

There are the obvious moments when it makes sense to pull money from an emergency fund, like when you lose your job, or you’re hit with bereavement costs or emergency home expenses like a leaky roof or broken window.

But what about those gray area moments, like when my car got towed? When is it time to pull money from your emergency account to cover the costs? Well, many financial experts agree that you should ask yourself three questions about your situation:

1. Is it unexpected?

2. It is urgent?

3. Is it necessary?

If the answer is “yes” to all three, then it would probably be a good time to pull from your emergency fund. If you answer “yes” to one but “no” to the others, then you might want to reconsider.

So, let’s go back to my personal example.

Was my car being towed unexpected? Totally.

However, it was something I could have prevented. Did that I mean I was supposed to bite the bullet and pull that money from my monthly budget?

A gray area like this is where the other questions can be great tie-breakers.

Since my car is my primary source of transportation, I needed it ASAP to get to class and work. So, it was urgent.

Most importantly, it was necessary. My professors would’ve likely knocked a few points off my participation grades had I skipped class, or my job could have fired me if I didn’t show up. No thanks.

With those three points in mind, I should’ve used my emergency fund money to recover my car.

Now, a different example: It’s Dec. 20, and you just realized that Christmas is nearly here (maybe you’ve been living under a rock for a few months).

That said, you need to buy a gift for Suzy, Stacy, Steve, Grandma Fran, your neighbor’s cousin, your cousin’s cousin and so on. But crap! You haven’t even started shopping and are already low on cash.

Is it necessary? I mean, unless you want to never be invited to another family Christmas ever again, yes. OK, maybe you aren’t actually buying gifts for everyone and their brother (literally), but it’s easy to feel like you have to drop a huge wad of cash during the holidays — even though you don’t.

Is it urgent? Well, duh. Christmas is in five days.

It is unexpected? NO! You had over 300 days to save and plan for your Christmas gift giving. Sorry, don’t even think about touching that emergency fund.

While every situation is different, it doesn’t hurt to walk through each question and consider your situation from multiple perspectives.

The Ideal Alternative to Pulling Money From Your Emergency Fund

If you’re still unsure if you should take money out of your emergency account, hopefully, you have an alternative option.

Brian Davis, co-founder of financial blog SparkRental, suggests using your checking account before withdrawing from an emergency account — and using emergency funds a last resort.

If you have enough discretionary funds in your budget to cover the cost of your dilemma, consider using these funds first, Davis recommends.

Davis suggests readjusting your budget afterward by eating out and drinking less, and watching movies at home instead of heading to your local theater.

However, if you’re someone who sticks to a strict budget each month and doesn’t allocate much “fun money,” this solution might not be so feasible.

That being said, if you have an emergency account, use it. And don’t feel bad about it!

Life happens. And if you’re preparing for it, you have every right to take care of yourself when it hits hard — because we all know it will.

Kelly Smith is a junior writer and engagement specialist at The Penny Hoarder. Catch her on Twitter at @keywordkelly.