Reluctance to Use Emergency Funds

The first step in any good financial plan is to establish an emergency fund to handle life’s emergencies and break the cycle of turning to debt. However, some people feel a reluctance to use the fund in an emergency and turn to credit cards to cash flow each bump in the road. This phenomenon is driven largely by fear – fear that a bigger emergency will happen before adequate time to rebuild the [tag]emergency fund[/tag]. Here are a few strategies to combat that fear.

Think of your emergency as a personal line of credit. It might even help to sign up for an account that offers a debit card. I keep my emergency fund debit card in my wallet with one of those ATM card slips that says, “Break only in emergency!” When Murphy strikes I use that debit card to tap my emergency fund rather than turning to a credit card.

Hang on to your oldest, no-fee credit card until you have established several months of savings. By keeping one credit card with available credit you still have a backstop should you have the unfortunate luck of getting hit by two emergencies in the same month. Be sure that the emergencies are real emergencies – clearance items at your favorite store do not qualify.

Emergency funds should remain in a highly liquid account. The majority of your emergency funds should be socked away in a high-interest savings vehicle, like a savings account with a top online bank. We also keep a local, smaller emergency fund in an interest-bearing checking account (with debit card access). I could get a higher rate of return on this smaller amount elsewhere, but I have discovered that the higher the rate of return on my money the more pressure I feel not to touch it. This is especially true of holding an emergency fund in stocks or mutual funds. If the market is up, I don’t want to cash out because it might go higher. If the market is down, I don’t want to cash out until it goes back up again. Best to simply keep the emergency fund in easily accessible cash.

Make rebuilding your emergency fund a top priority after each expenditure. If your car died last week and the repair bill topped out at $600 you should quickly find a way to refund that $600 back to your emergency fund. Stop paying extra on your debts until that $600 has been replenished – minimum payments only. Take some extra overtime next week. Round up some old books and DVDs and sell them on EBay. The point is to make rebuilding that emergency fund your number one priority. Having that plan in place before the emergency will make it easier to swallow the $600 hit to your emergency fund, because you know it will be quickly replenished.


  1. Who needs emergency fees when you have student loans! Yay! Haha

    I’m working on my emergency fee to pay back those loans when I’m out of college x.x

    Justin Dupre

  2. I am using the same template. The weird thing is when you look at, the pink flower is there and then you go back to real domain name second time that flower will be there. But you never go blogspot website, the pink flower will not appear on the real doman name.I am confused 🙁

  3. The peace of mind alone from having an emergency fund is worth it. It frees you from the stresses of life when unexpected things happen, which is worth quite a bit.

  4. Chicky – I don’t see your “pink flower image” as I remember it appearing. Was it a background image, or part of your header? Perhaps this is an issue with the new template. Congrats on building out your own domain by the way – I look forward to your future posts.

    Lynnae – Don’t taxes just stink! At least you have the funds in place to pay them – smart move.

    Ron – That line of thinking helped me cut up my credit cards. I figured instead of attaching $10,000 of the bank’s money to a piece of plastic I would simply attach my own (when fully funded).

    Writer’s Coin – You are so right. It’s been said that there is no softer pillow than having money in the bank.

    Justin – I like your plan to save up to pay off those loans when they come do. Be sure to save something outside of that account strictly for emergencies (illnesses, car repairs, etc.). You don’t want to be completely wiped out (financially) when you pay off the student loans.

  5. We just used $400 of our emergency fund to replace a drive shaft and u-joints in my husbands truck. It was wonderful not having to stress and turn to credit cards to find the money – instead a quick transfer of funds and poof its paid for. And even better the emergency fund should be fully again by the end of the month! Great post!

  6. We love our emergency fund. It gives us that sense of security that is so nice to have. We are just about debt-free (except for the mortgage) and are ready to start building up a bigger emergency fund very soon. Great article!

  7. My policy is to never withdraw from my savings account, ever. In my main savings account which I opened up a little over a year ago, I don’t have a single withdrawal. I’ve had one emergency and I paid it with credit card and took loan out of future paycheck which would have gone into savings. I’m currently paying it back with money which I would have spent and am paying myself interest!

  8. Lynnae,
    I’m curious about what unexpected taxes you have to pay with your emergency fund. If they are income taxes, you should change your deductions to reflect the appropiate amount so you do not pay or get back the next year.
    If they are property taxes, start saving through the year so you are not “surprised” again.
    Dave Ramsey has some great books and advice on these topics. You should find them at your library.
    Best wishes for 2009