
An Emergency Fund: What It Is and When To Use It
Help! It’s an emergency!
But is it though?
You’ve probably heard you should save 6-9 months of expenses in case of an emergency. Perhaps you already have your emergency fund. Good for you!
Hold on. Let’s clarify this. What even is an emergency fund and what qualifies as an actual emergency?

What is An Emergency Fund?
An emergency fund is a financial safety net designed to cover unexpected expenses or financial emergencies without relying on credit cards or loans. It typically consists of liquid assets, such as cash or savings accounts, that can be easily accessed when needed.
The Consumer Financial Protection Bureau defines an emergency fund as “a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income. In general, emergency savings can be used for large or small unplanned bills or payments that are not part of your routine monthly expenses and spending.”
An emergency fund is a pool of money set aside to cover unexpected expenses or financial emergencies. It serves as a financial safety net, providing individuals or households with immediate access to funds without relying on credit cards, loans, or other forms of borrowing. Typically, an emergency fund consists of liquid assets such as cash, savings accounts, or other easily accessible accounts.
The purpose of an emergency fund is to mitigate the financial impact of unforeseen events such as job loss, medical emergencies, car repairs, home repairs, or other unexpected expenses, helping individuals weather financial challenges without jeopardizing their long-term financial stability.
These are funds that do not fit into your regular monthly budget.

Where Should You Keep Your Emergency Fund?
Where you save your emergency fund depends on your personal financial goals, risk tolerance, and accessibility preferences. Here are some common options:
- High-Yield Savings Account: These accounts offer higher interest rates compared to traditional savings accounts, allowing your emergency fund to grow over time. They are also FDIC insured, providing a safe place to store your money while maintaining easy access to funds.
- Money Market Account: Similar to high-yield savings accounts, money market accounts offer competitive interest rates and FDIC insurance. They may have minimum balance requirements and limited check-writing abilities.
- Certificates of Deposit (CDs): CDs offer higher interest rates than savings accounts but require you to lock in your funds for a specific term, typically ranging from a few months to several years. While CDs provide a guaranteed return, they lack liquidity, as withdrawing funds before the maturity date may result in penalties.
- Taxable Investment Accounts: Investing your emergency fund in low-risk, liquid investments such as bonds or mutual funds may offer higher potential returns than savings accounts. However, there is a risk of loss, and the value of investments can fluctuate over time.
Ultimately, the best place to save your emergency fund is in an account that balances safety, liquidity, and potential returns based on your individual financial situation and goals. It’s important to prioritize safety and accessibility. You will want to ensure you can access funds quickly in the event of an emergency, because by definition, we don’t know when one of those will happen, right?

When Should You Use An Emergency Fund?
You should use your emergency fund in situations such as:
- Medical Emergencies: Unexpected medical expenses not covered by insurance can quickly deplete savings. Your emergency fund can cover deductibles, co-pays, or unexpected medical bills.
- Job Loss: Losing your job can lead to a sudden loss of income. An emergency fund can help cover living expenses such as rent, utilities, and groceries until you secure new employment.
- Car Repairs: If your car breaks down unexpectedly, repairs can be costly. Your emergency fund can cover the expenses of repairing or replacing your vehicle, ensuring you remain mobile.
- Home Repairs: From burst pipes to a malfunctioning furnace, home repairs can arise unexpectedly and be expensive. Your emergency fund can cover these costs, preventing you from going into debt.
- Unexpected Travel: In the event of a family emergency or other unforeseen circumstances requiring travel, your emergency fund can cover the cost of flights, accommodations, and other travel expenses.
- Natural Disasters: Events such as hurricanes, earthquakes, or floods can cause extensive damage to property and necessitate immediate repairs. An emergency fund can help you recover from such disasters.
- Loss of Income Due to Disability: If you’re unable to work due to illness or injury, your emergency fund can provide financial support until you’re able to return to work or secure disability benefits.
Essentially, you should dip into your emergency fund only for genuine emergencies that threaten your financial stability or well-being.
What Happens After You Dip Into Your Emergency Fund?
It’s important to replenish the fund once you’ve used it, so you’re prepared for any future unexpected expenses.
Building and maintaining an emergency fund is a critical aspect of financial planning and can provide peace of mind knowing you’re prepared for life’s uncertainties.
After all, if we know anything that is certain, it’s uncertainty!