One of the basics to a solid financial life is to have an emergency fund should something unexpected happen. If you’ve lived more than a few years, you know that things can and will happen all of the time and the importance of having an emergency fund is undeniable. But issues arise when you start to blur the lines between wants and needs and start using your emergency fund to pay for non-essentials. I am going to walk you through seven mistakes many people make in assuming emergencies are an emergency, when in fact it is simply a want.
7 Emergencies That Really Aren’t Emergencies At All
- Buying a New Car.
Buying a new car is not an emergency. You should be saving some money each month to put towards a new-to-you car. Now, if your car breaks down or you are in an auto accident and need to pay the deductible, this is another story. But simply buying a new car because you want it is not grounds for using your emergency fund.
If your car does break down and it is determined that you would be better off buying another car as opposed to fixing your current car (meaning the cost to repair exceeds the value of the car) then you should use the money you saved to buy a car for this and if you need to use some of the money from your emergency fund you can.
But this doesn’t mean you should go out and buy a brand new BMW. It means you find a used car in great shape with reasonable miles that you can afford and buy that one.
- Paying For Kids Extra-Curricular Activities.
We all want our kids to be well-rounded but sometimes you have to say no. If they come to you last minute wanting to play soccer you might have to tell them “maybe next year”. Sure they will be disappointed but they are kids and they will get over it.
Now as anyone with kids knows, most times situations like these do happen last minute on a regular basis. To avoid saying no to your kids, you can save a little money each month in a separate account for such things. It doesn’t need to be a lot of money, but just something so that when they do come to you, you don’t always have to say no.
- Buying a New TV.
Having that new 60-inch flat screen would be nice, and it’s on sale! But this doesn’t warrant raiding your emergency fund for it. While the “once in a century” sale sounds amazing, there will be other sales. In fact, come next year, the current model year will be discounted to move them out the door.
Make it a point to save some money specifically for a new TV and when you have the money, you can use that to pay for the new TV and not your emergency fund.
- Needing a Vacation.
It doesn’t matter how much life has you stressed out, using your emergency fund to pay for a vacation (even if it is a much needed one) is a bad idea. You need that money for unexpected expenses and a vacation does not qualify.
If you really need to get away, save up $150 and go get a massage. If you have kids, send them to their grandparents for the weekend and spend that time relaxing at home. Sure it isn’t as sexy as laying on the beach in St. Thomas, but it will give you the rest you need.
- Paying for College.
We’ve been hammered by the idea that student loans are the devil and many parents go to extremes to make sure their kids won’t have to pay a dime for college. They even go as far to not save for their own retirement. Don’t make this mistake and don’t make the mistake of using your emergency fund to help cover the costs.
Student loans do stink, but they aren’t the devil. If you are smart with them, you can use them to help pay for college and not be in financial ruin when you graduate.
If you still aren’t convinced, think of it this way: would you rather have that money in your emergency fund to cover an unplanned expense and still be able to provide for your kids or would you rather risk losing your financial well-being just so they don’t have any loans? Think about the stress they will endure knowing you are in a bind.
- Starting A Business.
The dream of many is to start their own business. They want to stick it to the man and be their own boss. But make sure you save some money so you can start your business and not use your emergency fund.
The reason is simple: most small businesses fail in a few years. If you have no emergency fund, how are you going to get by when you have zero income and are looking for a job? It’s just added stress. Leave the money in the emergency fund in case things get bad and you really need it.
- Updating Your House.
I know you really dislike the old counter tops in your kitchen and you want granite. But note that you just want granite, you don’t need it. I get that you could tell yourself you need it, but you really don’t. Your kitchen and your house will continue to function just fine without the granite.
In fact, unless there is something structurally wrong with your house that does need repair, no upgrades classify as a good use of your emergency fund. Also see 7 Ways to Save Money on DIY Home Renovations.
As you can see, all of these emergencies can easily be thought of as a need and not a want. But in reality, they are simply wants. We are just lying to ourselves when we try to label them as a need.
Next time something happens or you really want something, take a minute to stop and think about it. Be honest with yourself. Is it really an emergency? What happens if I use my money for said item and I lose my job next week? Will I regret using the money in my emergency fund for it?
Answering these questions will help you to make better decisions when deciding to spend your emergency fund.