Having an emergency savings fund, whenever possible, is home finances 101. You never know what’s going to come up, so the better prepared you are, the better. Many people mightn’t know much about what their emergency savings should look like.
For some, all that they’ll know is that they should have some. Ideally, the fund will be somewhere between three and six months of your average living expenses. You’ll typically start dipping into this in various circumstances.
Some of these will be relatively obvious, such as going to an emergency dental clinic or doctors, although some other things won’t. Coupled with that is the confusion you might feel about what you shouldn’t spend them on.
If you want to make the best use of your emergency savings fund, you’ll need to know what you should and shouldn’t use it for.
What Should You Spend Emergency Savings On?
Since your emergency savings fund is your money, you’ve every right to spend it on whatever you want. You’ve set this aside specifically for emergencies, however, so it’s worth knowing what falls into this category.
Typically, these will be unexpected situations that could lead to necessary, and more than likely urgent, spending. Some of the more notable of these include:
- Living expenses if you’ve lost a job or had your hours cut.
- Major car repairs following an accident, especially if you need your vehicle for work.
- Emergency medical expenses, provided they’re necessary.
- Essential travel, although this must be unexpected.
- Emergency home repairs.
Outside of these, there’s relatively little that you should spend your emergency savings on. Multiple other things could come up. You’ll need to determine whether you should use your emergency savings fund or your standard savings.
What Shouldn’t You Spend Them On?
With the large volume of unexpected things that can come up, you might think that you can use your emergency fund to cover them. While that’s your prerogative, you might want to avoid spending it on certain things.
These would typically be expected expenses that don’t occur too regularly. Birthdays and holidays could be some of the more notable examples of this. These are usually things that you should plan for in advance.
Some other large examples of this include:
- Back to school shopping.
- Car registration or purchase.
It’s also recommended that you avoid using your emergency savings for vacations and other large expenses. As attractive as these can be, they’re not necessary, which is what the fund should focus on.
Quite a few people can be confused about their emergency savings fund. Some might think that this is the same as their normal savings, which it shouldn’t be. Multiple other things could also cause some confusion.
Knowing what you should and shouldn’t spend your emergency savings on will clear up much of this. If you need to dip into this, it’s recommended that you top it up as soon as you can.
While this might take a while, alongside some budgeting, you’ll save yourself some worry in the long term.