5 Ways to Stop Pulling from Your Emergency Fund
Small withdrawals from your emergency fund add up.
There are varying opinions on how much to actually have in your emergency fund. A common one is to save three to six months’ worth of expenses. This helps protect you financially from moments of job loss and other major unexpected expenses without having to resort to a credit card or loan.
It can be challenging to build up an emergency fund. If we don’t have a clear understanding of what does and does not constitute as a crisis, pulling from your emergency fund is more probable than not.
For a parent whose newborn kept them up half the night, a morning cup of coffee on the way to work may seem like an emergency. However, this is just a feeling of the moment, not an actual crisis. And additional reoccurring sleepless nights can make that continual slip into your emergency fund problematic.
Little withdrawals here and there, like cups of coffee, add up. Frequently withdrawing can potentially lead to a complete depletion of your budding emergency fund. Thus, leaving you wondering what exactly you spent money on to leave you building from scratch again.
If you find yourself in this typical scenario of saving and withdrawing for non-emergency reasons, you are not alone.
Sixty-three percent of Americans don’t have enough savings to cover a $500 emergency and have to resort to other means. Alternative methods like cutting back spending in other areas, charging a credit card or borrowing funds from friends and family have to be taken instead. (1)
Five ways to instill financial discipline and stop withdrawing from your emergency fund.
1. Determine what is and is not an emergency. An emergency affects your physical safety, jeopardizes your health, threatens your financial stability, requires major unexpected repairs (like a roof caving in) and urgent travel (like a funeral or ill family member). An emergency is not for planned purchases like a house or car, vacation or for unexpected repairs that do not cause a financial inconvenience (like a home computer not used for work malfunctioning).
2. Have a motto or mission statement for your emergency fund. Have your own motto to hold you accountable for a withdrawal from your emergency fund – This withdrawal is for a real emergency because (1) my health was jeopardized, (2) loss of income occurred (3) urgent travel arose to be with an ill family member or friend or (4) transportation that secures my financial stability needs repair.
3. Don’t let emotions rule you. Desiring the newest digital device can rationalize you dipping into your emergency fund. Instead of stealing from yourself, add this wanted purchase to next month’s budget.
4. Visualize an emergency before making a withdrawal. Before taking money to cover a shopping spree, imagine tomorrow you had a need for urgent travel to be with a loved one. Wouldn’t you rather have this money in your emergency fund to take financial stress away so you can have your full attention on your loved one?
5. Celebrate goals. There is nothing wrong with treating yourself – especially when you have saved your first $1,000. Make a purchase to celebrate the occasion (just not from your own emergency fund).
While it can be a challenge, having an emergency fund creates a financial safety net that creates peace of mind in times of true emergencies.
Start adding your emergency fund to your monthly budget. No matter how small you contribute, starting somewhere is better than continuing to go nowhere.
1 – http://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-dont-have-enough-savings-to-cover-a-500-emergency/#7fbacbad6dde [1/6/16]