Knowing How and When to Use Your Emergency Fund

Approximate read time: 6 minutes

You’ve worked so hard to build up this emergency fund

Knowing when to use your emergency fund is just as important as knowing how to build it in the first place.

Building emergency funds isn’t always fun, and for the most part, it’s not fast. In my experience, the stickiest emergency funds are the ones that have been built slowly over time. When savings accounts get bulked up quickly, they tend to also deplete quickly.

So here you are… you’ve done great building up your emergency fund slowly over time, and now you’re being presented with an actual emergency. How do you know if this is the right way to use your emergency fund? How do you know if this is the right TIME to use your emergency fund? What if you can’t build it back up again? And what t if the emergency isn’t ACTUALLY an emergency?

It can feel like there isn’t a right choice

We can all think backwards in time to situations we thought were urgent but ended up not being a big deal. Our brains are fantastic at thinking about things like this, especially brains with anxiety. And right now, midst crisis, your brain is probably dipping into that old backstock of memories of things that you once thought were emergencies but were not. Your brain is trying to help you, but it’s kinda bad at its job. You need to make a decision, and you need to make it NOW.

Our brains don’t make good decisions when restricted

You are likely time restricted right now. You need to make a decision soon. And you have limited choices, right? That’s what an emergency is.Our brains love to make decisions like this! This is what your survival-obsessed brain lives for (literally). Unfortunately, this means that while our brains are great at making FAST decisions, they aren’t always great at making GOOD decisions.

Start with grace

Cut yourself a break. Being mindful that you are trying to make a big decision in a time of crisis is a great way to slow things down a bit. All you need is one breath in and out and you’ll already make a better decision. Did you do the one breath in and out? Good. Let’s first talk about how to recover and make a decision on THIS emergency, and then we’ll talk about how to make this easier the next time it happens.

Start with renaming your emergency fund

What is the purpose of your emergency fund? If you were to give your emergency fund a job, what would it be? What is the emotional benefit of your emergency fund? What is it meant to protect you from?  When I’m working with my clients, I don’t allow “miscellaneous” or “other” categories” in their budgets. Why? Because we’re focused on the job the money is doing for us, and those categories tend to muddy the clarity on that purpose. If someone wants to spend on something beautiful, we need a category for spending on beautiful things. We are not concerned with whether or not spending is necessary or not. Restriction is crisis and emergency, and as discussed above, our brains do not make great decisions under crisis/restriction/emergency.

What is your emergency fund’s job?

The same “no ‘other’ category” philosophy applies to emergency funds. Calling it an emergency fund may be too vague. If the job of this chunk of money is to protect you from time away from family, call it that. If the job of this chunk of money is to make sure you don’t have to take on more/any debt, call it that.

The more specific a job you give this money, the easier it will be to make a decision on when and how to use it.

Three steps to making this choice

Now that you’ve renamed your emergency fund (I’ll call it the X fund from now on), let’s run through a quick, three-step decision-making strategy. This strategy will not produce a right or wrong solution, it’s only meant to give you clarity and maybe find some other options you might not have seen before.

What are some values to using your X fund on this emergency?

List out all of the possible values of using this money to resolve (or partially resolve) the emergency at hand.Will you sleep better? Will it make it so you don’t have to take on more debt? Will it be easy because the money is available?  What else?

What are some possible risks associated with using your X fund on this emergency?

What are the possible risks?  Could it mean that you won’t be able to cover another emergency if it happens soon after this one? Would you feel panicked, guilty or remorseful if you saw the low (or zero) balance in that account? Are you concerned you wouldn’t be able to build it back up again?  What else?

Look for other ways

What are some possible ways you could get some or all of the values without some or all of the risks?  We are not looking for better ways, only OTHER ways. In fact, let’s get a little weird.  What would be the silliest possible way to deal with this emergency? (No one is saying you SHOULD do these things)  Brainstorm on some other ways? How could you get some of the values of using your X fund, without some of the risks?  Could you partially cover the emergency? Could you wait for a certain amount of time to decide? Could you skip town, change your name and live life off the grid?  What else?

Write it down.

Take 10 minutes right now to write out the values, risks, and other ways. If you like, you can take any of those “other ways” and run them through the same strategy. So let’s say you’re considering partially covering the emergency with your X fund… what would be some values of that choice, some risks, and again, some other ways.

There is no perfect right answer

But by now you’ve done a few things.

First, you’ve slowed down your decision making, even if that was just the time it took to read this article.

Second, you looked for other ways.

Third, you thought about the possible negative outcomes and used those possibilities as fuel for creativity and problem-solving. Looking negative possibilities right in the eye builds resilience, and that’s the biggest thing that this particular emergency situation can teach you… that you are resilient and you can trust yourself. Once the emergency you’re in right now has cleared (and it will clear), come back to the next section.

Practice the pivot

Welcome back! Now that you’ve moved passed that emergency (or you’re still reading), let’s talk about a way you can make the next emergency go a little smoother. And as a bonus, you’ll be better prepared to see and take advantage of unforeseen opportunities, not just emergencies!

Evaluate the situation, NOT yourself

Now that you’re past that last emergency, let’s do a postmortem.

What went wrong?

We are NOT looking for answers like “I ****ed up”, or “I should have seen that coming.”  Judgment and shame are not helpful.  Instead we’re looking for what went wrong before and during the situation. What happened before the emergency?  We are looking for patterns here, particularly patterns over time. Let’s say that the emergency happened because you changed jobs, and there was a longer-than-expected delay in your first full paycheck. That’s a good pattern to notice. Disruptions like job changes can and do result in emergencies. How does this help you now? Well if disruptions = emergencies, you can be one step more proactive, by keeping an eye out for disruptions.

Turning recovering from an emergency into preventing future emergencies

You just did a postmortem, now let’s talk premortem. Just like above when we are going to be looking for potential negative things/risks.  And again, we’re using those potential baddies as fuel for problem solving, as well as building resilience.

Make a plan

Let’s say you’re setting out a little plan for some of your money. You’re going grocery shopping.  Milk, ice cream, and baby carrots are on your list.  What could prevent you from doing that?  Where could it go wrong?  Let’s step it up. You’re beginning to save for a down payment for a house. You’ve got a nice little plan for how much you need to save per month to get to your goal.  What could prevent you from doing that?  Where could it go wrong?  You’ve just completed your budget for the upcoming month. What could mess this all up?  What could go wrong?

One more? Ok.

You’re considering a full career transition. You’re in uncharted territory.  What could prevent this from being a success? What could go wrong?

An easy strategy for thinking ahead about bad stuff

“What could go wrong” is an easy script to remember, but all by itself it can be indistinguishable from fear and anxiety, so we’re going to add an extra question. The question is ”How could I prevent that?”  Now we’ve taken that worst case scenario and turned it into a potential pivot, something to think about, or something to keep on your radar. The more skilled you are at seeing other ways to do something, prevent something or recover from something, the clearer you will be able to think. Remember we do not like to have choices removed from us, and our brains don’t make great decisions when we have limited options and time. By teaching your brain to look for other ways, you refocus on things you have control over, not what you have no control over (an emergency).

Clarity, certainty, and resilience

You may not have any control over the situation you’re in right now, but you do have control over how you problem-solve through it. By practicing the bravery it takes to look the potential bad things right in the eye and then seek out other ways, you practice resilience.

What do you think you’ll notice?

As you begin to look for the potential values and risks of choices, and then other ways, what do you think you’ll notice? What kind of patterns around emergency situations do you think you’ll see?I would love to hear from you! Contact me today!

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Last updated: July 2023