What is my emergency fund actually for?

15 Sep 2020

Life has a way of throwing a curveball when we least expect it. Whether it’s losing your job, a major unplanned expense or a salary cut, an emergency fund serves as a life raft to cover these expenses, so you don’t use your credit card. This fund should be separate from your regular savings and cover at least 3-6 months of living expenses. Remember this is a lifeline to keep you afloat for a few months.

The question is when do you delve into this emergency fund? – when to use it or when not to.


What not to spend your emergency fund on

This money is yours, but once you’ve put it aside for emergencies, it is your duty to spend it only on emergencies.

‘Remember, needs are things you need to survive, keep your job, or protect your assets; Wants are upgrades to your lifestyle.’ *

•    Expected expenses that occur periodically – you should plan for these expenses and budget it into your spending e.g. birthdays, annual car license renewals, back to school shopping, property or income tax. This also includes irregular spending such as car maintenance, home repairs or medical bills.
•    Non-essential spending – always ask yourself whether the money is needed for essential living. Leisure spending should come from your regular wages, no matter how urgent you feel it is. This includes, upgrading your phone, vacations, seasonal sales where that designer handbag you.ve been eying is now half price and someone else’s emergency.
•    Large financial goals – your emergency savings is not a source to fund other financial goals such as a down payment on a home, early retirement or business start-up costs. Plan for these financial goals separately.

What your emergency funds are actually for?

Don’t go to the extreme and refuse to touch your emergency funds when you actually need it. If you do tap into it, use it for necessary expenses such as housing, food and transport. Also remember to adjust your spending habits when you get to the point of using emergency funds, this way you can make it last longer.

•    Living expenses after a job loss – this is exactly what your emergency funds are for.
•    Major car repairs from an accident
•    Emergency medical expenses
•    Unexpected essential travel e.g. funeral of a family member, repatriation flight or residency matters.

Try to explore all other options before dipping into your emergency fund. 

Don’t forget to top up the fund after use. After a major emergency, you may decide to save more for the future. You could even scale back on some monthly expenses to top up your fund again or put some of your other savings on hold for a few months until you have your life raft again.

Chat to your deVere adviser about various savings and budgeting options to help you get your emergency fund sorted. [email protected]


Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.