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4 Steps to Take Before You Tap into Your Emergency Fund

The Bible tells us that that there are seasons of abundance and seasons of scarcity, and we should take advantage of abundant times in preparation for scarce times (Proverbs 6:6-8). Financially, this means that we should save money when have income, knowing that there will be times when our income is reduced, non-existent, or unable to cover unforeseen expenses.

And you've done this.

You've worked hard to develop your emergency fund, setting aside money each month until you had three to six months worth of living expenses set aside. Because of this, you felt prepared for a financial emergency.

And then it hit. Maybe you lost your job. Maybe your salary was reduced. Maybe a medical emergency occurred and now the bills are due. Fortunately, you have that emergency fund. This is what you save for, correct?

Yes. But it doesn’t always mean that you should immediately begin using those funds. Take these four steps before you tap into your emergency fund.

Step 1: Ask, “What other options do I have?” Don’t immediately assume that the answer to your dilemma is money. Sometimes, the need truly isn't urgent. You have time to save additional money. And, sometimes, the need isn’t a need at all, but a want. Granted, the scenarios I provided in the introduction were certainly needs. But, not everything is a financial emergency. So, explore your options.

Step 2: Create a new budget. When a financial emergency hits, your budget should change. The faster you are able to adjust your budget for your new financial reality, the faster you will be on the road to financial recovery. Those that forget this step will find themselves spending more than they should and their return to normalcy.

Step 3: Reduce all unnecessary expenses. This is a part of the budgeting process, but it deserves its own step because of its importance. Remember, an emergency fund is meant to cover living expenses, not luxuries. You are not trying to maintain the exact lifestyle you experience before the financial emergency. Maintaining a pre-emergency lifestyle will deplete your fund well before the three to six-month mark. So, stop eating out, start buying generic brand groceries in bulk, and reduce your entertainment subscriptions. Extend the life of your emergency fund by reducing unnecessary expenses.

Step 4: Use other non-investment savings accounts first. If you’ve been saving for a car. Use those funds first. If you have been saving for a vacation. Use those funds first. If you have been saving for Christmas. Please, use those funds first. Before tapping into your emergency fund, use other non-investment savings. This does not include retirement accounts, college savings accounts, or other investment accounts. Moving forward, it is more important to have an emergency fund than a car savings fund. So, postpone your new-to-you dream car purchase plans until you get through these times.

If you have an emergency fund, well done. But don’t immediately assume that an unforeseen expense or income drop necessitates that you pull money out of the fund. Consider you options. Create a new budget. Reduce unnecessary expenses. And use other non-investment savings accounts first.


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