Something always happens, this is a fact. Sometimes, when you think you are on your way to a debt-free and insured life, there will always be something that will happen to derail you. It does happen and we can’t do anything about it. The good news is that because we know that it may happen, we can prepare for it.
That’s exactly the reason why you should complete your emergency fund, calculate it based on your lifestyle. After that, keep it somewhere safe but not easily accessible. Use it only when you have a true emergency.
Not sure how to determine if you are facing a true valid emergency or not? Here are some questions to ask before you tap into your emergency fund.
Could you have prepared for it?
This is the same as asking yourself if it is unexpected. Forgetting to shop for Christmas presents is not an emergency, it may feel like but it’s not. You could have prepared for annual recurring expenses. A sudden trip with friends is also not an emergency. An emergency is something that is unpredictable and something that you can never prepare for. An example is suddenly being laid off from work, a typhoon, an earthquake, or just about anything that is unexpected.
Can you NOT pay for it?
We all know that we often confuse our needs with our wants. This is a good question to determine whether you really need to get money from your stash or not. Do you absolutely need to be in the concert of your favorite band? If you have no money then you can’t, it’s not wise to get money from your stash just for this. You might argue that it will be a once in a lifetime experience, but will you still live even if you don’t watch? Yes. On the other hand, what if a typhoon stripped away the roof in your house, can you not get it fixed? Of course not, you can’t live in a house without a roof.
Can you postpone it?
This is the last question you should ask yourself. Can you postpone it? If somebody from your family falls into an accident, of course, you can’t postpone that. If a typhoon washed up your home, you can’t possibly postpone that. On the other hand, when your appliance store announces an 80-90% off sale, that is not an emergency. That appliance will still be there even after you save up for it, it might be more expensive outside of a sale, but it is more practical.