Starting an emergency fund is often highlighted as a crucial aspect of personal finance, but we don’t talk as much about when you should tap into that money.

Recent events that have impacted consumers’ finances, including the COVID-19 pandemic and high inflation over the past year, may have forced some to dip into their emergency savings. In June 2022, Bankrate found that only 24 percent of adults surveyed had more in their savings than a year before, while 34 percent said they had less.

Now that the pandemic has subsided, you might be trying to rebuild that fund and contribute a bit more to a savings account. However, that doesn’t mean emergencies can’t happen. Plus, most experts say that the U.S. economy will enter a recession this year, which will take a toll on many consumers’ financial lives.

Here’s what you need to know about when it’s necessary to withdraw money from your savings and how to protect that money as much as possible.

What should you use your emergency fund for?

Emergency funds are designed to help you pay for unexpected costs or cover expenses during a loss of income.

It’s common for emergency expenses to crop up — and they can be unpredictable. A 2021 study found that 38 percent of households experienced a serious financial hardship nationally. These hardships might be due to a loss of income, a sudden expense or wages not keeping up with inflation.

When it comes to covering these costs, having an established emergency fund is crucial. Here’s a breakdown of four scenarios where dipping into your emergency savings might be a good idea to help overcome financial hardship and maintain everyday living standards.

1. Job loss

One of the biggest financial emergencies is job loss. With a looming recession, there’s a good chance that unemployment will increase and many may lose their main source of income as a result.

If you lose your job, you might need to tap into your emergency fund to cover essential expenses like housing and food.

2. Income reduction

Even if you don’t lose your job, you might see your hours or salary cut. Or, some may choose to reduce the hours they work to focus on other aspects of life, such as taking care of a baby, higher education or pursuing a new venture.

If that’s the case, you might need to cover the gap by dipping into your emergency savings. Figure out what you can cut from your budget to see if there’s a way for your reduced income to cover most of the essentials, and then turn to your emergency fund for the rest.

3. Medical bills

Medical bills are a huge source of stress and financial distress. Even if you have health insurance, you might be on the hook for a co-pay and still might need to reach your deductible. In that case, it makes sense to turn to your emergency fund to pay some of your bills.

However, you can reduce how much you take from your savings account at one time by checking with your healthcare provider to see if you can set up a payment plan.

4. Emergency repairs

If you rely on your car to get to work, you might need to access your emergency savings to pay for a car repair. Additionally, emergency home repairs, such as a broken refrigerator or stove, may require paying for professional help or buying new appliances. Tapping your emergency money to cover these costs can be a better option than using a credit card and building up debt.

What you shouldn’t spend your emergency fund on

Be careful of what you label an emergency. Try to avoid using your savings on nonessential items and services, such as a vacation or entertainment expenses.

Here’s a good barometer: Consider whether you actually need something to survive. If not, think twice before using emergency fund money for the purchase.

If you use your emergency fund now, you might not have access to the money later — when the need becomes dire.

Some financial experts suggest making an emergency budget that cuts most of your spending to the bone. One way to do this is to review your spending from the past few months and then identify the least important expenses. Those are costs that can be cut in the event of an emergency and reduce your overall cash outlay. This can help you reduce the chances that you’ll turn to your savings account for nonessential costs.

How to reduce what you take from your emergency fund

When you’re facing financial hardship, whether it’s from job loss, medical bills or some other issue, it’s important to look for a way to stretch your emergency savings for as long as possible.

Creating an emergency budget can be one step toward making your money last longer. But there are a few other things you can do as well:

  • Apply for unemployment benefits: If you lose your job, immediately apply for unemployment benefits. Those benefits might take a while to materialize, which is why it’s so important to apply, even as you look for another job. Receiving the benefits can help reduce how much you rely on your emergency fund.
  • Look into community resources: Your community is often a great place to turn in times of need. For example, many cities and towns have a food bank to help you reduce the need to tap into your emergency fund to buy groceries. Additionally, there might be emergency utility and housing assistance in your community. Reach out to local agencies and nonprofits to see if you qualify.
  • Talk to your creditors: Depending on the situation, you might be eligible for some degree of forbearance. Keep in mind that your interest will still accrue, though, and eventually, you’ll have to get up to speed or create a repayment plan.
  • Get help from friends and family: In some cases, you might be able to get help from friends and family in a pinch. Of course, that means you need to be ready to return the favor later if they fall on hard times.
  • Turn to the gig economy: Gig work or a side hustle, such as delivering food or running a blog, can increase your sources of income. The extra income can go toward paying for some of the essentials,  reducing your need to withdraw money from your emergency fund.

If you can find other ways to keep from tapping your emergency fund as frequently, that can be a big help and reduce the need to rebuild as much.

How to rebuild your emergency fund

Now that you’ve used some of your savings, it’s time to consider how to rebuild your emergency fund. It will take time to get the fund to amount to three to six months’ worth of expenses — the amount often recommended for emergency funds —  but if you get into effective savings habits, it can be done within a year or so. Here are some tips to follow when rebuilding your savings.

Start small: You probably can’t replace the money you use at one time. It’s fine to start small. Figure out how much you can put in each week — even if it’s $5.

Increase the amount you set aside: As your finances stabilize, look for ways to increase the amount you set aside. If you find a new job, you might be able to increase your contributions even faster. But make it a goal to increase what you set aside incrementally.

Make it automatic: Set up automatic transfers so you don’t have to think about it. Regular transfers can help you begin to rebuild your emergency fund without having to remember to make it happen.

Use windfalls: Build up your emergency savings faster by applying windfalls toward your fund. If you get a tax refund, a bonus at work or some other unexpected money, use a portion of it to replenish your emergency fund.

Frequently asked questions

    • One popular method for quickly building up savings is called the 30-day rule. With this method, you withhold from making any nonessential, impulse purchases and deposit the amount you would have paid for that purchase into your savings account. Doing so can help you better understand your spending habits, show you areas for saving and serve as a short-term plan for saving.
    • Experts often recommend the 50/30/20 rule for making a budget. It means that 50 percent of your post-tax income goes to essentials (such as rent and food), 30 percent goes to nonessentials (such as entertainment and dining out) and 20 percent goes toward savings.
    • There are many money-saving apps that come with features such as automated saving, digital savings envelopes and games that can improve financial habits. Some popular examples of money-saving apps include Digit, Long Game and Chime.
    • Most financial experts say you should have enough money in your emergency savings fund to cover three to six months’ worth of living expenses. Review your budget and determine what expenses to account for when determining this amount. The exact amount may vary depending on your type of work, household size and economic conditions.

Bottom line

Don’t be too hard on yourself if it takes you longer than you’d like to rebuild your emergency fund. It takes time and patience.

However, putting aside money for your emergency fund can be one way to reduce the chance that an unexpected problem will catch your budget off guard. It will help you navigate difficult life situations and leave you better off financially in the long run.

—Miranda Marquit contributed to a previous version of this article.