When is it Okay to Dip into an Emergency Fund

Your emergency fund is intended to be your first line of defense when times get tough. But sometimes, it can be difficult to decide when to dip into these funds.

You may be reluctant to spend money that took a long time to save, opting instead to use a credit card or take out a loan and keep your emergency fund intact. Or, after going months without an emergency, you may be eager to spend the money on a want rather than a need. But an emergency fund is most helpful when it's saved and used as intended.

Learn about the benefits of an emergency fund and what you should consider as a true emergency so you can make the most of your hard-earned safety net.

What Is an Emergency Fund and Why Is It Important?

An emergency fund is money that you set aside for unexpected events. It can provide financial security and help you get through a rough period without the added burden of financial stress. Unexpected expenses are an inevitability, and you can use these savings rather than having to borrow money or overdraft an account.

In a recent MetLife study, we found that the number one stressor for employees is personal finances. Two of the top five sources of concern were paying for out-of-pocket medical expenses and covering expenses after losing a job.

That stress, in turn, can lead to worse sleep, health issues, and a lack of focus at work. But knowing you have an emergency fund to fall back on allows you to react to challenging situations with thoughtfulness. For example, if you’re laid off, rather than taking the first new job that comes your way, you’ll have time to hunt for a job you want and negotiate your salary with confidence, knowing that you’ll be okay in the meantime.

What Counts as an Emergency?

With all the benefits that can come from having an emergency fund, it can be difficult to give yourself permission to spend the money. Here are a few examples of when dipping into your savings may be appropriate:

  • Unexpected lost income: Your emergency fund can be a helpful resource if you lose your job, your hours are cut, or you're unable to work due to an accident or illness. If you do experience an accident or illness that prohibits you from working, disability insurance could also help.
  • Primary vehicle repairs: If you can’t get to work or school after your car breaks down, use the money to get yourself back on the road.
  • Natural disasters: Floods, hurricanes, fires, earthquakes, and other natural disasters can leave you scrambling. The fund can help pay for housing, food, transportation, and recovery efforts.
  • Medical emergencies: You don’t want finances to keep you or a loved one from seeing a doctor or filling needed prescriptions.
  • Home repairs: Whether you’re dealing with a broken window or faulty water heater, homes can require ongoing maintenance and repairs. You may want to save for these within, or separate from, your emergency fund.
  • Necessary bills: If you’ve cut back on your wants and don’t have enough money coming in to cover your needs—rent, utilities, and other bills—an emergency fund can help keep you from shutoff services and late payment fees.

Tapping your emergency funds for non-necessary purchases, such as an extravagant vacation or lavish dinner out, can be tempting. However, try to maintain a strict barrier between real emergencies and your wants. Otherwise, you could get stuck if an emergency strikes before you have a chance to replenish your savings.

How to Build an Emergency Fund

A full emergency fund should have about three to six months’ worth of your necessary expenses. However, if you’re starting from scratch, you may want to begin with a more manageable goal of $500 or $1,000.

It’s not going to happen all at once, as saving hundreds or thousands of dollars takes time and effort, and often, a mindset shift is an important part of the process.

One trick is to keep the money in a separate account, as it’s easier to avoid spending money if it’s out of sight. A high-yield savings account can be a good option that allows you to earn interest on your emergency fund.

Here are a few more tips you can use to build your savings:

  • Automate the process by having a portion of your paycheck directly deposited into your savings. Or, set up periodic automatic transfers from your checking to your savings account.
  • Create a monthly savings goal and track your progress. To help make that easier, you can use apps and programs that analyze your finances and automatically transfer money into your savings, or that offer incentives for saving.
  • Whether you're shopping for food, clothes, travel, or luxury goods, always look for ways to save money. Send the difference (or, at least part of it) to your savings.
  • Find ways to decrease your recurring bills, such as internet, utilities, and phone plans. Bundling services and asking about discounts can sometimes help. Also, shop for new providers every six to 12 months to ensure you’re still getting the best possible deal.

Finally, remember that you’re not alone on this journey. If you want to learn more about managing finances, building savings, and using insurance to protect yourself from emergencies, MetLife’s financial wellness resources are filled with helpful tips and real stories of what has worked for other people.