What counts as a financial emergency?

Emergency Fund Jar

It is wise to have at least three months worth of expenses set aside in case of an emergency. But what counts as an emergency?

An emergency fund is for unplanned situations, such as the loss of a job, or a medical emergency. It can also be used in the event of an emergency home expense, such as a flooded basement, or to repair a roof damaged by a storm. Your emergency fund can also come in handy to cover travel costs to visit a seriously ill loved one or attend a funeral.

So what isn’t a financial emergency? Routine car maintenance is not an emergency; it is something that is to be expected with car ownership. It is best to set up an alternate savings account for these types of expenses, and put money into it regularly. Even $50 a month will make a big difference when it comes time to bring your car in for maintenance. Property taxes, and insurance costs are also not emergencies. These expenses would fall under the umbrella of “irregular expenses”, and should come out of another savings account. And, of course, buying a new outfit for a special occasion or paying for vacation expenses are most definitely not financial emergencies, and these expenses should come out of a savings account.

When you’ve taken money out of your emergency fund, it is important to begin replenishing it once the dust has settled on the emergency. Pay yourself first by setting up an automatic transfer to your emergency fund, and other savings accounts. Don’t have an emergency fund yet? Starting one today is a great first step, and will help you tackle life head-on the next time an emergency strikes.