Finances: When You Should Use Your Emergency Fund

Breaking out your emergency fund. Image from

We are all aware of the concept of being intentional with finances and this includes preparing for a rainy day. Experts believe that an emergency kitty should be able to cover expenses for at least six months when things get rough. On the other hand, not a lot is said about when we should use our emergency savings and therefore most people always end up not utilizing the funds because of anticipating worse things to happen and others using the money for the most trivial things possible. Ideally, there is no set right way to go about it but there sure is a few guidelines to aid in manoeuvring how to use these funds.

What constitutes an emergency?

An emergency fund just like the name it is made for emergencies only. True emergencies are those that are:

  1. Unexpected. This means that there is no way one would have anticipated this happening, for example, the loss of a job is a true emergency. We plan and prepare for lives worst outcome but nobody is ever truly prepared to let go of a steady stream of income especially if it’s a permanent job. Therefore in cases where the said event is unexpected, your savings come to the rescue. Flooding is an emergency and if your insurance doesn’t cover it then yes, it is time to dip into your kitty.
  2. Urgency. If you can survive without it for a few weeks then most probably it is not urgent and therefore it is not an emergency. Your kids falling sick is urgent and they require medical care as soon as possible. This could also mean not taking care of it as soon as possible means that the situation at hand becomes more expensive.
  3. Necessary. Wants and needs come to play here. Not everything that we want, we need and therefore needs are essentials and should always take precedence as we require them to survive.
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Therefore, if it is unexpected, urgent and/or necessary, one can use their emergency financing. It is also important to note that once you are back on your feet, the focus should be building up your emergency fund all over again.

Notably, not unless it is absolutely undoable, it is paramount that one does not fully empty out their emergency fund even when it is an emergency. This ensures that you have a cushion for the next time disaster strikes if it happens so soon. It is impossible to know when you will fall sick and max out your insurance payments or predict the demise of a loved one and therefore we should prepare the best way we know-how.

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Do you have an emergency fund? Finances: The Importance Of An Emergency Fund

You should also have a sinking fund which you can find out more about here – 6 Benefits Of A Sinking Fund

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Caroline Mumbe is passionate about anything money related. She is an entrepreneur and writer who enjoys simplifying financial concepts and making sure people lead their best financial lives. She reads a lot and knows the best coffee joints in Nairobi.