You’re on your game. You have an emergency account and have enough money in it to take care of an emergency.
The only problem is that many people don’t understand what’s really considered an emergency. Is a blown tire an emergency? What about a broken refrigerator? Let’s take a closer look at what is really considered an emergency.
An Unexpected on Unplanned Event
An emergency is an unexpected or unplanned event. For example, a loss of income is considered an emergency. The loss of income may come from a layoff or even a health emergency that takes you out of work for an extended period of time. People are often confused and think that a car repair or home maintenance is an emergency, but it’s not.
Why Repairs, Maintenance, Etc. Are Not Emergencies
Car repairs, home maintenance, and other expenses that you know will occur are not emergencies. You should have accounts in place to take care of these expenses. For example, buying new tires for your car is an expense that you should have planned for. You should have money set aside to maintain your home and your car. This will prevent the need to dip into your emergency fund.
How to Avoid Dipping Into Your Emergency Account
Every home owner should have an account that is strictly for home repairs. Financial experts recommend putting 1% of the purchase price of the home into a savings account each year. This account is then used for ongoing expenses accrued from owning a home. For example, if your home was $145,000, you would want to save $1,450 for home repairs. Treat the account like a bill and put money into your account each month. The same can be done for a car. If your car was $25,000, you’ll want to put $250 into savings each year to cover everything from new brakes to oil changes.
Don’t use your emergency fund for something that you should have accounted for. While new brakes can be expensive, they are part of owning a car.
An emergency account should only be used for things that you never saw coming. This might be a massive layoff at work or being injured in a car wreck. There are so many things you can plan for. Don’t let those things be the ones you use your emergency fund on. That way, when a real emergency comes along, you’ll be prepared.