Dipping Into Your Emergency Fund

By Leah Manderson for lifehacker.com

I’ve always been an avid saver, partly because I have really big dreams of traveling and retiring early, and partly because I’m constantly petrified that the absolute worst will happen. Now, I know you need an emergency fund—a stash of at least six months of net income—should you run into a job loss, hospital visit or any other “oops!” of the more dramatic variety. Like many of us, however, I’ve dipped into my savings for some questionable reasons.

In my defense, they certainly felt like emergencies at the time! Just to alleviate my conscience, though, I spoke with Tonya Oliver-Boston, a certified financial planner with LearnVest Planning Services, to see whether I was actually right to use my savings—and how to do it better in the future.

The First Time: To Pay Off Debt

I went to a notoriously image-conscious Southern college, where girls curl their hair for class and wear $700 designer dresses once—and never again. In my sophomore year, having always been a bit of a plain Jane with no fashion sense, I wanted to buy some beauty. With my unused credit card and healthy savings account (I still had money from my lucrative high-school job as a nanny, plus some more from my college job in a sandwich shop), I figured I could loosen the reins on my frugal ways.

After a spree of spending on dresses, $100 salon haircuts, and nights out on the town, I racked up about $2,500 of credit card debt. My inner saver was appalled. I didn’t want to pay more interest than I had to on that balance, and as a young, healthy individual with no mortgage or family, I thought I didn’t need the savings as much as the peace of mind…so I drained my emergency fund to pay off my bill.

What the CFP Had to Say: Although it’s tempting to use accumulated savings to pay off debt (particularly credit card debt), Oliver-Boston says that it’s usually not the smartest idea.

“While paying off debt with a higher interest rate than what you’re earning on your savings will always mathematically prove to be the right answer, day-to-day living doesn’t always work out as nicely as a balanced equation—you might need that money for something even more urgent than interest payments,” she explains.

A better idea, she says, is to pay down debt over time through budgeting and tracking expenses instead of depleting your savings to be instantly debt-free. That way, even when your cash is called up to bat, you’ll still have funds left to use. After all, who says you can’t have credit card debt and a financial emergency all in one rough month?

The Second Time: To Land a New Job

After college, I landed a paid internship in New York working in international relations, but I was miserable—cry-myself-to-sleep miserable. My daily work was largely mind-numbing research about nuclear processing, which sounds a lot more exciting than it is, and to continue in my field I would have needed at least a master’s degree. I realized I needed to make my escape before investing that much more time and money in something that bored me to tears.

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