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When is it okay to use your emergency fund?

Well all know that most personal finance experts will tell you to set aside three to six months worth of living expenses into an easily accessible account in order to cover emergency expenses. But how do you decide what is, and what isn’t an emergency?

The majority of the time, the question is easy to answer. A new iPhone is not an emergency. A weekend trip to Montreal is not an emergency. Fixing the scratches on your car, or getting new seat covers is not an emergency. However, if you get into a car accident, paying for the insurance deductible would probably be a cause where you would use your emergency fund.

But what if your $2,000 Macbook dies, and you need it to keep bringing in an income with your blog? What if your bicycle gets stolen? What if you get invited to a birthday party and you can’t afford a present, or you overspent this month and you know you won’t be able to pay your cell phone bill on the 31st?

Here are four questions to ask yourself before you use your emergency fund:

1. Can you cut out other expenses from your monthly budget?

Before you transfer money out of your savings account, take a hard look at your budget to see if you can move money around to cover the expenses. For example, could you go for a month without your Friday happy hour tradition with your co-workers, or skip out on your hair appointment? A few small sacrifices now might mean you’ll be able to cover the unexpected expense, and you won’t have to replace the money from your emergency fund.

2. Is it really an emergency?

There are often temporary solutions to problems that will allow you to keep functioning until you have saved up enough money to replace an item, or pay for an unexpected bill. For example, you might be able to get an interest-free grace period to pay off the bill, or if your laptop dies, you could borrow one from a friend until you’ve saved up enough money to replace yours – or you could use the computers at the library in the interim.

3. Can you increase your cash flow?

If you receive an unexpected expense, or you think you might not be able to pay a bill before the end of the month, instead of immediately turning to your emergency fund, are there other ways you can increase your income instead? Taking on extra hours at work, selling unwanted possessions, or finding a temporary job might get you through your emergency situation, without having to dip into your savings.

When I lost my job in March 2010, I was devastated. But despite having only $3,000 in my emergency fund, I wasn’t worried. My plan was to take on a part-time job in order to make my emergency fund last longer. I didn’t know how long I was going to be unemployed for, so having a part-time job helped me keep to a regular schedule, while still having the time to search for jobs and go on interviews.

4. Can you decrease the cost of the emergency?

Can you repair the item yourself, or having some do it for you, instead of replacing it? Do you have a skill that you can barter with someone in order to cut down the cost of the repairs? There are plenty of ways to decrease the cost of most emergency situations. For example, if you don’t absolutely need a top-of-the-line Macbook Pro, consider replacing it with a less expensive laptop, or buying one refurbished.

For me personally, I would do whatever it takes to keep my emergency fund in place. It took me nearly 5 years to finally get my emergency fund to $10,000, and the only reason I would touch it is if I lost my job, and couldn’t find a part-time job to keep me afloat. In fact, the only two times I’ve ever had to use my emergency fund is my two stints of unemployment.

My feeling is that as long as I am able bodied and can find more work, sell items I no longer need, or go without whatever it is I need to replace, it’s not a true emergency to me. And I think the key is to decide early on what you are going to use your emergency for – and stick to those rules.

When would you use your emergency fund?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


  1. This is a great post. I certainly ask myself similar questions. I keep my emergency fund in a TFSA so that encourages me to think carefully before withdrawing as I won’t be able to refill until next year.

  2. Diedra B says:

    Hey Krystal, this is a great question and one I’m currently grappling with.

    To me, an emergency is death, serious illness, or natural or man-made disasters. The loss of a job by no fault of one’s own is covered too. But if someone decides to give up a source of income, I think they should first see if it can be covered without dipping into their emergency fund as such a fund is finite.

    It can be so hard to save the emergency fund in the first place. . . I don’t think it should be frittered away on pseudo-emergencies.

  3. Sam says:

    I think we have to move out of the emergency fund midset to get ahead. Hence, probably never?

  4. TeacHer says:

    I’m with you on this one. I always worried that if I had a stash of cash I would just end up spending it, but now that I’ve built up a small emergency fund ($5,000, halfway to my ultimate goal of $10,000) I do anything to avoid touching it. In fact, this weekend I’ve committed to staying in because I’ve overspent this month and don’t want to have to dig into that money to pay my credit card bill!

  5. A properly funded budget would actually cover all these scenarios:

    But what if your $2,000 Macbook dies, (Business related expenses category which is funded after tax returns since business expenses are a tax write-off if you use it to generate income)
    What if your bicycle gets stolen? (Spending money budget item or if this is your primary mode of transportation you should have a vehicle repairs/update fund)
    What if you get invited to a birthday party and you can’t afford a present(Gifts for friends and family budget item)
    pay your cell phone bill on the 31st?(Cell phone budget)

    The only true emergency I would see is if you lost employment. Even this can be planned for if you have a passive income portfolio.

    • Krystal Yee says:

      But what if your Macbook isn’t a business expense, and you don’t have savings set up for gifts, vehicle repairs, etc? Someone who has been on top of their money for years (or has a passive income portfolio) will have money in their savings funds for such things, but for someone who is just starting out, getting an unexpected bill, or having something break down on them is a huge deal.

      When I was getting out of debt, I put $100/month into an Emergency Fund. The rest went towards my student loan payments. I lived on a very tight budget. What if I was faced with an unexpected car repair, a birthday party where everyone in the family was chipping in for an expensive present, or a cell phone bill caused by going over my minutes talking to creditors? It would be extremely difficult to add those expenses into a budget that had absolutely no wiggle room.

      • @Krystal Yee: I agree completely Krystal. The article started off talking about setting 6 months of income aside though so I was replying with the assumption that the proposed scenario was already operating with a budget and just needed to determine what the use of the emergency fund would be.

  6. SavingMentor says:

    I really liked your suggestions in this article about how you can avoid using your emergency fund when things that are quasi emergencies pop up. Great advice. Also like the above comment about setting up a proper budget.

  7. Michelle says:

    I’m using my emergency fund to get a new furnace. Unfortunately this is a relatively new emergency fund and I’m completely wiping it out, but the alternative is many more months of debt. (Furnaces, it turns out, are wicked expensive.) It’s sad to be starting over again with $0, but I have to keep reminding myself that this is exactly why I started it in the first place!

  8. Anne says:

    I never had an emergency fund per se but just some cash saved up that would be used if needed. This year I lost a job, sprained/broke my foot which now requires lots of physio and my laptop needed a new hard drive. I managed to fix my laptop myself for much less $$ but even with budgeting I find myself using up my cash reserves (mostly for physio). It was nice to have them though! In the future, unless I have benefits I will be allotting more money in the budget to injury/illness preparedness.

  9. Joel Olson says:

    I’m wondering where people place their emergency funds. It seems that if I have it in a bit of a harder location. I might think twice on using it for an emergency. Where does everyone else keep it? I keep mine in either a TFSA or ING Account.

    • Krystal Yee says:

      I keep mine in a savings account with PC Financial. There’s a delay in taking the money out (the last time I checked, it would be processed the next business day), so I really have to consider if it’s a true emergency or not. I think their TFSA works the same way.

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