You’re a rock star and have set up a fully-funded emergency fund. Bravo! There’s only one problem: you find yourself using your emergency fund every month because of “unexpected” expenses! How can you make sure that your emergency fund is only used for emergency purposes? Here are a few tips to help get you on the right track . . . .
1. Give your emergency fund a mission statement.
Why is it easy to spend money from your emergency fund when a budget category is depleted? It’s because you didn’t give your emergency fund a mission statement in the beginning – you thought the words “emergency fund” were enough!
No worries. I’ve done the same thing.
In order to protect your emergency fund from delivery pizza, give your emergency fund a mission statement. It could go something like this:
This emergency fund is to be used only in the case of a real emergency. A “real emergency” is constituted as (1) a situation where the well-being of a family member is at risk (like in the case of a spreading disease) if the funds are not utilized, (2) transportation to an income-producing job is diminished due to mechanical failure (like an oil leak that is somehow coming through your floorboard), or (3) shelter needs are no longer met due to unforeseen circumstances (like a tree through your roof).
Your mission statement may look different (probably should), and you could certainly poke holes in mine, but all of that is okay. The point here is for you to make it more difficult on yourself to justify the use of your emergency fund.
2. Allocate more money to your budgeting categories.
Another reason you probably use your emergency fund too often is that you don’t adequately fund your budgeting categories. I’ve heard people say that they keep their budget lean and mean because they have an emergency fund for miscellaneous expenses. That’s not an emergency fund!
My argument here is that people should create realistic budgets in order to avoid pulling money from their emergency fund. For example, instead of only including gas and oil changes in your Transportation category, include tire replacements, parking meter expenses, and occasional repairs too!
I’ll be upfront with you: this requires a huge initial time commitment. When you’re trying to come up with every possible expense for a certain category, you can become pretty drained. However, you shouldn’t give up! Beef up your budgeting categories and you’ll have little excuse to use your emergency fund for non-emergencies.
3. Make your emergency fund difficult to access – but not too difficult.
Dave Ramsey tells the legendary story of a person who framed their cash emergency fund in glass and wrote on it: “In case of emergency, break glass.” That’s pretty funny, and I wonder if they ever had to break the glass!
Making your emergency fund difficult to access is one way to make you think twice before using your emergency money. One way to do this is by opening up a separate savings account at INGDirect.com and nicknaming it “Emergency Fund.” In order to use your money, you’ll have to log in to your seldom used account, withdraw the funds, and wait for them to hit your primary checking account. This isn’t too difficult, but it adds a couple more steps than simply keeping your emergency fund commingled in your checking (although you can get some pretty sweet perks by having a lot of money in your PerkStreet checking).
At one time, when our emergency fund was small, we kept cash in a box . . . in another box . . . and finally, in a safe. Oh, and I almost forgot it was rubber-banded! Not very secure – we should have used duct tape! Ha.
Have some fun with this one, but make sure not to prevent access to your emergency fund. You don’t want to bury it in a glacier or give it to your second cousin who lives across the country. Don’t make it too difficult to access, or you might have a real emergency on your hands!
Do you have some tips for using your emergency fund with wisdom? Leave a comment below!