Is that really an emergency?

I know most of you are sick of me talking about an emergency fund. If that past 20 months have taught us anything, it is that an emergency fund is necessary. Many people have had to deal with unexpected emergencies such as illness, job loss, or accidents. These are the types of things that your emergency fund is for – to cover you when unforeseen circumstances arise. An emergency fund is not for the following:

Lend out to someone. We all want to be able to help our friends and family in need, but do not do this at the risk of your own security. I have learned that often a “loan” becomes a gift due to lack of repayment.

Invest it. Emergency funds are those that you cannot afford to put at risk. It does not matter how hot a tip is or how strong your FOMO is, you do not invest emergency funds.

A vacation is not an emergency. It may be tempting, but you can also start a vacation fund alongside your emergency fund. Buying furniture or a car is not an emergency either. If you have been in an accident, your insurance should cover a loaner so you can take your time to find another car. I don’t care how great the sale on that sofa seems either – these are not emergencies.

I call the emergency fund the “toe of the sock” money. You need to really have to reach in far to get to those dollars. Think twice before you open that sock drawer.