Use the Emergency Fund or Not?

I have a friend who recently lost her job. She’s not the only income earner in the household, but she does contribute a good bit to the family’s finances. Fortunately, she has a three month emergency fund saved up. However, her proposed management of that fund leaves me scratching my head.

On the day she lost her job she came to me and said, “Well, that’s it. We’re going to have to hit the emergency fund now for our expenses.”

I asked if things were already that bad.

“Well, no, but this is an emergency so it’s time to tap the fund.”

“Have you cut your expenses back so that maybe you can live mostly on your husband’s income for a while?” I asked.

“No. Why would we? We have the emergency fund. It’s for three months’ of expenses so we don’t need to cut our lifestyle down. We’ll just use the fund to bridge the gap. We’ve saved for this eventuality, so we’re going to keep going as we always have. We’re even going on vacation in June.”

“But if you cut back on your expenses for a while, that fund will stretch much longer. What if it takes you more than three months to find a job that pays what you were making before?” I asked.

“It won’t,” was her answer.

I left it at that, but I had to wonder: At what point do you throw in the towel and rely totally on your emergency fund and how much should you try to avoid touching it for as long as possible?

When we’ve gone through layoffs or other financially tight times in this house, we’ve done everything we could to avoid touching the emergency fund. We’ve picked up extra freelance work, taken part time jobs, and scaled way back on items like cable, travel, entertainment, and eating out. Our rationale is that we would rather curtail our lifestyle for a short time and rest secure in the knowledge that the emergency fund is there, in full, if things should get really bad.

As long as we can cut expenses or find other sources of income, that fund remains untouched. It only gets touched if the income dries up, the expenses can be cut no further, or the disasters just pile up too fast to deal with them (a layoff, compounded by a leaky roof, with a side dish of medical problems thrown in, for example). While we’ve had to resort to the fund once or twice, we’ve almost always managed to pull together enough income and expense reductions to keep afloat without touching it at all, or by only withdrawing a small amount to cover us until a freelance check comes in, for example.

My thinking is that you never know how long it will take to find work. A few years ago you might have had a new job in a week. Now, except for certain fields, you’d better plan on a few months. If you’re relying on your fund that entire time, you could be in trouble if your search outlasts your fund. You also don’t know when your spouse might also be laid off, or you might get sick, or you might get in an accident, or any other of a thousand things that can derail you financially. It’s better, in my view, to save that fund for something that cannot be dealt with any other way. If you can reduce your lifestyle or bring in any income, it’s better to do that than touch your fund.

My friend has a different philosophy. She figures that they saved three months of expenses, so they might as well use them. She’s out of work, so she’s going to use the emergency fund to replace her salary. She’s not going to downgrade her lifestyle or look for part time work. To some extent I can understand her point of view. You save for an emergency so why not use those savings when something happens? But what’s she’s failing to consider is what happens if that emergency gets worse? What happens if her husband is laid off, too, she still hasn’t found a job, and the fund is depleted?

She and I differ on our view of an emergency. She defines an emergency as something that will inconvenience her. It will be an inconvenience to cancel cable or switch to a pay as you go phone. It will be an inconvenience to work at Target or try to pick up some freelance work. She would rather use her emergency fund to avoid being inconvenienced. I, on the other hand, view an emergency as something that I cannot deal with on my own. An emergency is when both of us are laid off, there’s no freelance or part time work to be found, our expenses are down to the bare minimum and we’re dangerously close to having to miss a payment on a bill. That’s the time to touch that emergency fund. Only when things can’t be solved any other way will I dig into the emergency fund. It’s safer to keep that fund untouched for as long as possible so that if the time comes that I have to use it, I still have it all instead of having a fund that’s decimated by months of paying for cable, trips, and restaurant meals.

Who’s right? There are valid points to both sides and I think to some extent it depends on your level of risk tolerance (or maybe how optimistic you are). If you’re okay with facing a worsening emergency after your fund is used up, then by all means use it at the slightest hint of inconvenience. If you crave safety and security, you’re better of leaving the fund untouched for as long as possible. So, what’s your opinion? Would you touch the fund at the first whiff of trouble, or would you hold on to the money, finding other ways to make ends meet for as long as possible?

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13 Responses to Use the Emergency Fund or Not?

  1. You are right. She is wrong.

    Unless you already have a job lined up, cutting expenses immediately etc is the only sensible financial response to losing your primary source of income.

  2. Matt says:

    Who knows why people make the choices they do. If she has kids that probably factors into it. Seems strange that someone with enough discipline and good sense to save up three months worth of expenses would then tap into it at the first sign of trouble – thats why I say something else has to be going on. I don’t think we know the whole story.

  3. Aryn says:

    My husband went on disability recently, which reduced his income to a level slightly higher than unemployment benefits. We still haven’t touched our emergency fund. We also found that our expenses dropped dramatically while he’s been home, without even trying.

  4. bb says:

    She will know three months later.

  5. KellyB says:

    Agreed with all other posters. I lost my job last year, just *knew* I’d get another quickly, but it took 7 long months. What a huge surprise! But I managed through it WITHOUT touching a cent of my E-fund (in fact savings actually grew, thanks to a severence package and a tax refund!). Luckily I didn’t have to cut cable, etc., but I would have if needed. I did downsize categories where I could, such as entertainment expenses, eating out, etc. Didn’t buy anything that wasn’t a necessity, that was a big change too. So it can (and SHOULD) be done. What will she do after the 3 months and she still doesn’t have work???

  6. Theresa says:

    My husband has been laid off for 6 months now and luckily we haven’t had to touch the emergency fund. We cut down some expenses and lived off of my income.

  7. I definitely think you are correct. I think your friend’s attitude could spring from several different things. 1. She just sees the world differently (like you said). 2. The reality of this economy is not real to her, because other than this layoff it hasn’t touched her personally. 3. Maybe it wasn’t that difficult for her to save her emergency fund, so she’s less emotionally attached than most of us would be after socking away 3 months of expenses. For her sake, I hope her optimism is warranted.

  8. snshijuptr says:

    I would just hate the thought of derailing my other savings goals to replenish the efund. When my husband loses his job this summer we will try everything to stay away from the efund.

  9. Diane says:

    I’m with you… I’d cut whatever extra expenses I could and get whatever part-time work I could before tapping into the emergency fund. Better to cut back now than to end up in a REAL emergency when the fund runs out in 3 months and she hasn’t found a job yet! Even if she finds a job in 3 months, the thought of using up the emergency fund and having to start over is too scary…

  10. Guy G. says:


    It’s funny how someone will take so long and work so hard to build up a decent emergency fund and then go and spend it up without a second thought. You’re right to say that tips on budgeting that help her reduce her current expenses would really help her not blow through the emergency fund. It would at least slow down the process.

    They should at least put a few things on hold, like the cable, gym memberships and other elective expenses.

    Thanks for sharing,

  11. Isabelle says:

    When people use words like ’emergency’ we all assume their definition is the same as ours – it isn’t. It’s like ‘rich’, ‘poor’, ‘hard up’, ‘essential spending’ – I know what I mean when I hear these words and it won’t be the same for you.

    So, this woman’s definition of ’emergency’ is not that of most of us on here!

  12. Gail says:

    I hate taking money out of my savings. I have several savings accounts earmarked for certain things and I’ve assigned a mental tolerance for when and why I will take money out of any account. I would love to have a 3 month emergency fund saved up, but our income/health issues hasn’t allowed it, yet we are trying very hard to be on a cash basis and I can’t imagine getting laid off of work and immediately tapping the emergency fund whether it be $100 or $100,000! Take to do what you can to save and make ends meet, before touching that. When I went onto disability we tried to stretch our money as far as possible and good thing–eight years later I’m still not back to work! Some people have never yet been hit with the reality of life. Some of us have been hit too many times!

  13. Debtbuster says:

    I think I have the same viewpoint as the rest of us here. Going straight into the emergency fund is a very risky strategy and probably not a very good one. I once had a similiar experience where I lost my job and just like KellyB I just *knew* I was going to get a new job before the month was over. The month went by, so did the next, and the one after but still nothing. But unlike KellyB I had taken the road of your friend and my e-fund was gone not long after the first month had past. But due to my optimism I started putting things on credit (highly not recommended) because I *knew* I would have a job and the income to pay it off soon. I didn’t find a job until a good 6 months after and by that time I was also in a good mess with all my debts. Let’s just say I’ve learnt my lesson and have started my emergency fund again which can be easily accessed (in case of a real emergency) and the only time it’s touched is when I deposit money and I intend for it to stay that way! All I can say is all the best of luck to your friend.

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