Money Dork has a good article about knowing when to tap into your emergency fund and separating out your emergencies.
I thought he had good insight about the different emergencies that arise. He thinks you should separate out your emergency fund into two different categories: crisis emergencies and life’s little unplanned emergencies. I think this is a good idea, because then you won’t spend too much money on life’s little emergencies and find yourself with less in your fund if you lose your job.
A crisis emergency would be like losing your job, having a major health problem that takes you out of work, or a death in the family. Life’s little emergencies would be like owing a little more on your taxes, paying a health insurance deductible, paying a deductible for an auto accident, or any other expense that occurs unexpectedly.
One thing that I struggle with is not considering fixing your car as an “emergency”. It’s definitely an emergency, because we depend on cars every day, but it’s probably something that we could plan for. If you put together a car maintenance fund that you put money into every month, you can use that money to pay for car repairs rather than out of your emergency fund.
The point is that the emergency fund money should not be tapped into unless it’s a really big emergency. It needs to be something that is really going to hurt you financially if you can’t pay for it up front.
