4 Questions to Ask Yourself Before Using Your Emergency Fund

What really counts as an emergency?

A solid emergency fund is one of the best ways to protect yourself against surprise expenses, and it's essential, because life can throw a lot of costly problems at you. These can range from the relatively small (like the $375 bill I got from the auto mechanic this week -- thankfully, my old car's wheels haven't yet fallen off) to the potentially catastrophic, like a job layoff.

Having a stockpile of cash available to you in an emergency (ideally, enough to cover three to six months' worth of bills) can save you from needing to go into debt if you need money in a hurry. Here's what to consider before tapping your emergency savings.

1. Is this an unexpected expense?

Some expenses that could seem like emergencies can actually be planned ahead for, so it's important to know the difference between these and a truly unexpected emergency bill. If you intend to buy holiday gifts for your kids, for example, that is an expected expense, and it's not a good idea to tap your emergency fund to cover those costs. A better move would be to start putting extra cash aside in your savings account a few months before the holidays, so you're ready. Similarly, if you know your car is due for new tires soon, that's also not unexpected.

An unexpected expense could be a bill for your health insurance copay for a recent emergency room visit, or covering your auto insurance deductible if you get into a fender bender. If you're laid off from your job tomorrow and need a way to cover your bills until you get a new job, that's also definitely a reason to use your emergency fund.

2. Do you need to pay for it now?

Personally, I hate it when I owe money on a bill and I can't pay it right away. But it's also important to note the difference between an urgent expense and something that can wait. You might know that your air conditioner is coming to the end of its useful life and could break at any time, but it's a better idea to try to save up money for a replacement ahead of time instead of just covering the cost from your emergency fund immediately. If the air conditioner breaks before you've got all the money ready for a new one, that's an emergency fund situation.

3. Can you pay for it another way?

Let's say you need to pay that bill right now, but rather than immediately tapping your emergency fund, consider other ways you might have to cover it. After all, it's best to leave your emergency savings for when you have no other option, or are faced with covering a lot of expenses (like your bills if you get laid off from your job). Your car needs new tires now. Can you use a 0% APR credit card to cover the cost, then pay off the charge before you accrue interest? Did you just get your tax refund and can dedicate part of it to the tires instead of tapping your emergency fund?

4. How soon can you repay yourself?

While answering this question may not help you decide whether to use your emergency fund, it's still worth considering. You don't want to drain that money and leave yourself unprotected against future emergencies, so whenever you spend some of it, make a plan to repay it as soon as you can. This might mean taking on extra hours at work, if possible, or cutting back on a few discretionary expenses until your emergency fund is back where you need it to be.

Building an emergency fund is one of the kindest things you can do for your finances and your peace of mind, so make sure you only use that money for its intended purpose -- and pay it back promptly when you do, so it's there for you again next time you need it.