Here's what I always wonder about - when is it ok to actually use the emergency funds? Sounds like a dumb question - but really, it's complicated. Like, when my Spouse was out of work for 2 years, that money would have been gone right away. And was - because we had no choice but to use all savings to pay mortgage. (another reason we are downsizing so that won't happen again - any new mortgage we take on will have to be payable by one person only in case one of us loses a job)
So - outside of job loss, what is the money ok to be used for and what is it not for? (medical bills, broken furnace, new roof, unexpected lawyer fees? Or none of the above)
For me it comes down to needs vs. wants. I would consider medical bills, broken furnace, new roof, unexpected lawyer fees to be needs. Therefore eligible for EF use. Some other examples of EF eligible needs are.
-Auto repairs and associated costs. As long as the vehicle is crucial for work. Getting your hotrod modified would not qualify.
-Speeding ticket or towing charge.
-An escrow shortage.
-Emergency home repair. Just repair not renovation. Water leaks, Gas leaks, Broken locks, Broken windows' main drain etc...
-Crucial appliance failure. Fridge, Furnace, Hot water heater, Sump pump etc... Is a clothes dryer crucial? Not for us, but maybe.
With medical bills I have a caveat. If the medical bill is so large that it would wipe out your whole emergency fund I would work out a payment plan with the medical service provider.
A job loss or potential job loss changes things quite a bit. You want to make the fund last as long as possible. When I was laid off in 2005 we started asking ourselves hard questions. "Can we live with a bucket under that leaky sink? If not can we shut off this sink for now?" We dumped our Dish and never went back. We found it wasn't necessary, even when fully employed.
If you get into a situation where you have to chose between paying medical bills or paying your mortgage, pay your mortgage. They can't foreclose on your body (yet) but they can kick you out of your home. Try to make a payment plan and keep in regular communication with the medical provider. Once they sell your debt to a collection agency the damage to your credit is done. Even if you tried to pay back the medical provider in full it would not come off your credit. Plus they probably won't take it and refer you to the collection agency. You have a lot of rights when it comes to collections. You can request that all future communication be in writing. They can not threaten you etc.. please check this link if you need more info on this.
The key is to not let it go to collections but if it does, do not jeopardize your families future to satisfy a collection. Medical debt on your credit is not the end of the world. A foreclosure on your credit would be pretty bad. If it is a huge debt they could sue you but they will most likely sell it to the next agency. I have been the victim of agencies looking up my name in the phone book thinking I was another Brandon Smith and trying to get me to pay their debt. DO NOT give them ANY information about yourself when they call. They really wanted my SS#. Which if I gave them, would be written down next to the fraudulent debt and make it much harder to get out of. I would respond "How do I know your not an Identity thief?" I would always make them prove it, which they couldn't. So the calls would stop. For a while. Until the next agency bought the fraudulent debt. Then the calls would resume and I would start the process over. After 3 or 4 rounds (about 2 years) it finally stopped, I hope.
The lesson? I am not scared of collection agencies. If you know your rights and read them back to the caller they back down fast. I could have sued them many times for violating the law but I am not a big believer in litigation unless I am seriously impacted.
It's a bit of a moving target but to simplify my answer.
Fully employed you can use your EF for needs you can not immediately meet. Use it to stay out of debt.
Fear or threat of job loss. use your EF sparingly.
Under or unemployed use your EF as sparingly as possible. Use it to stay in your home.
It's a bit of a moving target but to simplify my answer.
Fully employed you can use your EF for needs you can not immediately meet. Use it to stay out of debt.
Fear or threat of job loss. use your EF sparingly.
Under or unemployed use your EF as sparingly as possible. Use it to stay in your home.
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