Let us reassure you that all those nights you suffered from FOMO and dined on leftovers were worth it. Weâve assembled a panel of expert financial planners to weigh in on when and why you should tap your savings, and how to do so intelligently, without derailing your plan for financial security.
âShort-term, emergency savings are perfect for using when a need arises, but should really only be used in true emergencies such as a job loss,â said Jason Speciner, CFP at Financial Planning Fort Collins based in Fort Collins, Col. And while a week or two of âfunemploymentâ may sound appealing at first, that hoard of pelts you collected in Red Dead Redemption 2 wonât go far with the landlord or your creditors.
Common sense dictates you should cut back whatever expenses you can while youâre in between jobs, but depending on how you lost your job, you may not have to rely completely on your savings to keep you afloat.
If youâve recently lost your job, you may be eligible to collect unemployment benefits through the joint federal-state unemployment insurance program. The particulars of who can collect unemployment varies from state to state, but in general you must meet the following criteria:
Youâll have to apply for unemployment with your stateâs unemployment insurance agency, either in person, over the phone or online. When you do so, make sure you have information such as the dates you worked for the employer, how many hours you worked, and other important details.
Check out this list of links to state unemployment insurance agencies, and also see MagnifyMoneyâs detailed guide to filing for unemployment to help ensure you get all of the financial assistance to which youâre entitled.
Sometimes an illness or injury can take a greater toll on your financial health than on your body. A recent Kaiser Family Foundation poll found 67% of the country lists unexpected medical bills as their biggest worry when it comes to paying for healthcare, and given the thousands of dollars of debt you can rack up with even a single visit to the hospital, itâs easy to understand why.
âLife happens, and these types of expenses are why financial planners are always adamant about establishing an emergency fund,â said Rick Vazza, CFA at Driven Wealth Management in San Diego, Calif. âWithout one, the cost would normally be covered by credit, and if the credit on a large expense canât be paid off immediately, the interest charges can be significant.â
If your health insurance doesnât cover enough of the costs to protect you from a bill you canât afford (or you arenât fortunate enough to have insurance in the first place), you still have some options before charging that medical bill to a credit card and potentially setting yourself up for years of debt.
Getting a hefty bill from the hospital can be enough to send you in a panic, but you should avail yourself of every opportunity to lower the amount you owe before forking over a payment. In general you can:
Find out more by consulting our guide on how to get your hospital bill reduced and minimize the drain on your savings.
You donât want to get in the habit of leaning on your savings to purchase big-ticket items you could do without. But sometimes things fall apart, and if your furnace went on the fritz, you wouldnât want to wait until your next paycheck to restore heat in your home. You could always charge the repair (or replacement) on a credit card, but make sure youâll be able to pay off the balance by your next billing cycle if you want to avoid interest payments.
âA good rule of thumb is to dip into the emergency fund whenever the alternative would require carrying a credit card balance to pay for the irregular expense,â said Vazza.
One way to help soften the blow of dipping into your savings to replace a major appliance is by having a well-planned budget that includes money for such incidentals. Ditch your pen and paper, and try one the many budgeting apps available to help you track your money.
Making a budget means taking a long, hard look at how you spend and save money, which is why itâs often so unpleasant. To begin, youâll need to determine a few facts such as:
Learn more about how to use these apps and set up your first budget at MagnifyMoneyâs ultimate guide to budgeting.
Dipping into savings to seize an opportunity is more open to interpretation than the other items listed above â is it worth taking money out of your account to invest in your brother-in-lawâs dating app idea? But at the end of the day this is your money (and your life), so only you can decide if an opportunity is worth spending the cash.
Depending on the opportunity, you might find a personal loan from a bank can help you cover expenses along with dipping into your savings. Lenders (both traditional banks and online financial institutions) offer plenty of loans to help you out with the associated costs.
Of course, not even the most lenient lenders just hand out sums of money to anyone, and if you find one that does, you should run in the opposite direction â itâs probably a deal too good to be true. Some other things to keep in mind when applying for a loan are:
Read our guide to find out more about the ins and outs of navigating a personal loan.