The 3 Times I Used My Emergency Fund: Was I Right to Dip Into It?

Leah Manderson
Posted

should you use your savingsI’ve always been an avid saver, partly because I have really big dreams of traveling and retiring early, and partly because I’m constantly petrified that the Absolute Worst will happen.

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Now, I know you need an emergency fund—a stash of at least six months of net income—should you run into a job loss, hospital visit or any other “oops!” of the more dramatic variety.

Like many of us, however, I’ve dipped into my savings for some questionable reasons. In my defense, they certainly felt like emergencies at the time!

Just to alleviate my conscience, though, I spoke with Tonya Oliver-Boston, a certified financial planner™ with LearnVest Planning Services, to see whether I was actually right to use my savings—and how to do it better in the future.

The First Time: To Pay Off Debt

I went to a notoriously image-conscious Southern college, where girls curl their hair for class and wear $700 designer dresses once—and never again. In my sophomore year, having always been a bit of a plain Jane with no fashion sense, I wanted to buy some beauty. With my unused credit card and healthy savings account (I still had money from my lucrative high-school job as a nanny, plus some more from my college job in a sandwich shop), I figured I could loosen the reins on my frugal ways.

After a spree of spending on cute dresses, $100 salon haircuts and nights out on the town, I racked up about $2,500 of credit card debt. My inner saver was appalled. I didn’t want to pay more interest than I had to on that balance, and as a young, healthy individual with no mortgage or family, I thought I didn’t need the savings as much as the peace of mind … so I drained my emergency fund to pay off my bill.

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What the CFP® Had to Say: Although it’s tempting to use accumulated savings to pay off debt (particularly credit card debt), Oliver-Boston says that it’s usually not the smartest idea.

“While paying off debt with a higher interest rate than what you’re earning on your savings will always mathematically prove to be the right answer, day-to-day living doesn’t always work out as nicely as a balanced equation—you might need that money for something even more urgent than interest payments,” she explains.

A better idea, she says, is to pay down debt over time through budgeting and tracking expenses instead of depleting your savings to be instantly debt-free. That way, even when your cash is called up to bat, you’ll still have funds left to use. After all, who says you can’t have credit card debt and a financial emergency all in one rough month?

  • Jonathon Mah

    “[...] pay down debt over time through budgeting and tracking expenses instead of depleting your savings to be instantly debt-free. [...] After all, who says you can’t have credit card debt and a financial emergency all in one rough month?”

    This doesn’t make sense to me. If there is a financial emergency in the same month, then spend with your credit card, and you’re no worse off. However by delaying paying off the debt, you pay more interest.

    • RestlessAntics

      I think what is trying to be said is that it’s better to have an emergency fund readily available to use if an emergency happens instead of using your credit card for that emergency and putting yourself more in debt (assuming you already have credit card debt and are paying it off).

  • Camika Lopez

    I think the best answer is that depending on the circumstances and how quickly you pay back the savings. Depending on who you ask, different people constitute different things as emergencies. If you take out of your savings to pay off debt, for a new job, car, home etc…in the theory of Maslow’s Hierarchy of needs none of these may be an emergency…but if this leads to a better quality of life which in a sense leads to more money and more money in savings then I say go for it. Sometimes no one knows your circumstances better than the person looking at you in the mirror….