5 Tips for Effectively Using Your Emergency Fund

If you’ve worked to build an emergency fund, you’ve likely set some rules for yourself, like committing to a set contribution each month or not pulling from it to cover vacation or home renovation costs. So, when the day comes that you need to use the money you’ve worked hard to set aside, you might feel hesitant about how to proceed. 

If you need to tap into your emergency savings but are apprehensive, we can help ease your mind with these five tips for effectively managing and using your emergency fund.

1. Make a Plan Before You Start Spending

Before you make the first withdrawal, make a plan, if time allows. This plan doesn’t have to be complicated – in fact, it can look similar to a regular budget. Some things to consider:

• How much money do you have available? The amount you have will govern if you can rely fully on the fund or if you’ll need to identify other ways to cover your expenses.

• What will you use the money for? The reason you’re using your emergency fund may impact other decisions you’ll need to make. For instance, if you’ve lost a source of income, you may need the cash to buy groceries or generally make ends meet. But, if you faced an unexpected illness and are headed back to work, you may just need a cushion to knock out unanticipated medical bills. 

• How long will you need to rely on the fund? Answers to the two prior questions will help you plan your spending since they’ll give you a good idea about how long you’ll need to draw from your emergency savings. For instance, you may qualify for unemployment after a period and be able to use that to replace some income instead. Or, if you’re paying off a one-time expense, you may be able to make monthly payments and otherwise follow your normal budget without exhausting your emergency savings. 

2. Practice Good Money Management

Once you’re ready to start tapping into your fund, set guidelines for yourself on how you’ll use it. This may seem clear cut once you’ve identified what the money will be used for, but there may be ways to streamline your spending. 

• Cut expenses. If you’re using your emergency fund to fully replace income, it can be easy to return to your old spending patterns. But, if you’re not sure when you’ll have other income or want to stretch your money as far as you can, you’ll want to examine your spending and make some changes or cuts. This could be transferring high-interest credit card debt to a card with a lower interest rate to cut down your payments or you could pare back on “nice-to-have” items like movie or music streaming services. 

• Be honest about needs vs. wants. When you’re relying on your emergency fund, it’s important to evaluate whether each purchase is a true need or just something you want. For instance, you’ll always have necessary expenses like medications and food. But, if you find yourself spending more time browsing the web or social media, impulse buys from your favorite online retailers are something you’ll want to avoid, even if it seems like a great deal.

3. Research Other Forms of Assistance You May Qualify For

You shouldn’t feel bad about having to tap into your emergency fund, but at the same time, you should look around for sources of help. Depending on your circumstances, there may be other forms of help or assistance you qualify for that would allow you to cut back your reliance on your emergency fund.

 For instance, if you’ve lost your income stream, you may have access to free community resources, such as a food or diaper bank. If you’re a small business owner, your local Chamber of Commerce may have tips on support for small businesses facing financial hardship. 

 Maximizing all available resources can help you preserve some of the cash in your emergency fund for other expenses in the future. 

4. Be Strategic in How You Move Your Money

There are a few things to keep in mind when you’re regularly pulling funds from emergency savings:

• Minimum balance requirements. Some accounts require a minimum balance to avoid fees or to earn higher dividends. Be aware of what these limits are to ensure you don’t incur extra fees or miss out on dividends if you can afford to leave more money in the account or need to switch to an alternate account altogether.  

• Move just what you need. While you want to be aware of any transfer or withdrawal restrictions, you also don’t want to move too much money out of your emergency fund at once and feel tempted to overspend. One strategy is to treat the money from your emergency fund like a paycheck and move it biweekly to cover just your bills and necessary expenses.

5. Set a Goal for Rebuilding Your Fund

After your emergency savings has taken a hit, it can be empowering to put a plan in place to rebuild it. You may not be able to put it in action right away, but planning ahead can have you ready to get started once you’re able. 

• Calculate a target amount . Aim to have enough in your emergency fund to cover three to six months of net income. In tough times, this should allow you to cover all your regular expenses, including the amount you typically contribute to savings, allowing you to continue building a small cushion even in times of trouble. 

• Estimate a timeframe. Depending on your circumstances, you may not know when you’ll have steady income again. But, if you’ve been temporarily laid off or ill and unable to work for a set time, you may be able to project how long it’ll take you to refill your emergency fund.  

If you know, or can realistically estimate, what you’ll earn when you go back to work, you can draft a budget using your anticipated income and expenses now. Take a close look at bills and other spending. Factor in your emergency fund as a bill you pay to yourself each month to help keep it top of mind. 

 Get More Money Management Tips

Whether you’re facing an emergency or not, it’s always the right time to practice responsible money management and learn how to maximize the products and services your financial institution offers. For more money management tips and to learn how to make PSECU’s products and services work for you, visit our blog. 

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