Here's Why Your Emergency Fund Should Cover More Than Just Essential Bills

A recent SecureSave survey found that 63% of workers today can't cover an unplanned $500 expense. Hopefully, you're not in that boat, but rather, are close to having a fully loaded emergency fund. Many financial experts will tell you that means having enough cash to cover three months of essential expenses. 

The purpose of having an emergency fund is to be able to cover your essential bills should you lose your job. It's also important to have money in your savings account in case an unplanned expense arises that your regular paycheck can't cover. And the logic is that if you have enough cash banked to pay for three full months of essential bills, you probably (or at least hopefully) have enough to cover an unexpected home or car repair.

If you sat down to calculate your emergency fund, you may have included expenses like your rent, car payment, utilities, grocery bills, and medications -- basically, the things you need to function and can't do without. But you may want to include some non-essential expenses when calculating your emergency fund for one big reason.

When you want to buy yourself more options

Let's say you spend $4,200 a month, only $3,000 of that is essentials and the remaining $1,200 consists of things that aren't, like cable, streaming services, activities for kids, and leisure. You might tell yourself you'll aim for a $9,000 emergency fund, since you could conceivably just not spend money on non-essentials in the event of a lost job until you're working again.

That logic certainly makes sense, and it's consistent with what financial experts will often tell you. But you may want to include some non-essential expenses when calculating your emergency fund, too. So in this example, instead of saving $9,000, you might aim for $10,800, or $3,600 a month instead.

The reason? Let's say you're out of work for three months. Is it really reasonable to not have access to any sort of TV or streaming content for entertainment? When you're out of work, it can be a tough thing mentally. You might need the release of a funny TV show or thriller to alleviate some stress.

Similarly, let's say that as part of your $1,200 monthly non-essential spending, you pay $100 a month for your child to take karate lessons. Would you really want to pull your child out of that program the minute you're out of work?

That's why it could pay to save up for more than just essential bills in your emergency fund. Going beyond just essentials gives you and your family more options when you need to actually live off of savings for a while.

A gradual effort

Setting large savings goals can be daunting. In this example, we talked about saving $10,800. That's a lot of money.

So if you're in the process of building up your emergency savings, don't stress if you don't hit your goal right away. It could take months or years to get there. 

Also, it's okay to take a two-tiered approach where you first aim to save enough to cover three months of essential expenses, and you then try to tack onto that with money to cover non-essentials. So in this example, your first goal would be to aim for $9,000 in savings, and from there, you'd try to get to $10,800.

Remember, too, that having some amount of money in the bank is better than having none. So even if a three-month emergency fund for essentials bills only is out of the question for you, save $500, or $600, or whatever you can. That way, you have some cash reserves to tap in a pinch, and you can work your way up as circumstances allow.