Life throws expensive curve balls every once in a while. Having a slug of cash on hand will keep you from having to use high-interest credit cards or to sell long-term investments, such as stocks and bonds, to take care of a problem that just can’t wait.
Investment analyst Mohasin Athanikar suggests where you can invest your emergency fund.
Morningstar’s director of investor education, Karen Wallace, puts forth some scenarios that may warrant tapping into your emergency funds.
Loss of Job
The main reason of an emergency fund is to set money aside in case you lose your job or are unable to work. You need the money for basis sustenance and to keep the roof over your head.
Unexpected Travel
When someone who is very important to you dies, it can be expensive to drop everything and book a last-minute flight and hotel to attend their funeral. But if you can’t imagine not being there to honour your loved one’s memory, having an emergency fund can give you the ability to go and may save you from having to put a lot of expensive charges on your credit card.
Travel may also have to take place if a close family member or friend falls ill or meets with an accident.
Healthcare Emergencies
Accidents and illnesses happen! Even if you have medical insurance, you may be surprised at how much you end up owing out of pocket. Medical bills are one of the major reasons people get into debt.
Then there are dental emergencies.
However, botox or beauty treatments or LASIK surgery is not an emergency. Sure, you can go ahead and feel great, but it is still insufficient reason to deplete your emergency fund. There are some things that are more elective in nature that deserve careful consideration.
If a pet is a part of your family, budget for that too. Although you can budget for your pets' anticipated needs like food, yearly vet checkups, and even neutering and spaying procedures, health issues also come up without warning. At some point, your pet may need a lab test, an X-ray, or even surgery.
Repairs
Car or Bike: When pricey repairs come up, ask yourself how much you rely on your vehicle and if you truly need to make the repair right now. If you live in an area with decent public transportation, you might not need to fix your vehicle immediately. For others, it might be an absolutely necessary.
Major Appliance: This is another category that requires some judgment on your part. If your refrigerator is broken, you need to fix that immediately. Ditto for your heat in the winter or air conditioning during the summer. But depending on your lifestyle or where you live, not all major appliance repair constitutes an emergency. For instance, if your dishwasher breaks, you may be able to get by washing dishes by hand for a few weeks.
Home: Monsoon rains may have caused damage to your roof. There may be tremendous leakage that needs to be attended to.
Before you tap into your emergency fund, ask yourself:
- Is it unexpected?
- Is it urgent?
- Will I regret not going ahead with this expenditure?
- Will it put you at a tremendous inconvenience?
That will keep you on track and prevent you from acting out of haste.
