Rethink your emergency fund

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Q. I always dip into my emergency fund. Is there a place I can keep the money so I won’t spend it unless I really have to?
— Spending

A. Part of the question here is why you’re dipping into your emergency fund.

If you’re dipping in for actual emergencies, you shouldn’t beat yourself up about it because that’s why you have it in the first place, said Brian Power, a certified financial planner with Gateway Advisory in Westfield.

He said you should pat yourself on the back because most people don’t keep a cushion around to fall back on.

If you’re dipping into it for everyday living expenses, Power said, the problem isn’t that your emergency fund is too easy to access, but instead, you are having a difficult time keeping within your budget. Take a hard look at your expenses and see if you can cut back.

If you don’t have room to trim expenses, Power said you may want to consider taking out a home equity line of credit as a back-up to your emergency fund.

“In true emergency situations you can draw down on the line of credit as you need it,” Power said. “If it’s not a true emergency, having to go into debt by drawing on the line of credit may stop you in your tracks to really think hard about spending the money.”

He said it could be a good way to help you prioritize what is a real need in your life versus a want.

Power said a real emergency fund should not be hard to access.

“That goes against the whole concept of an emergency fund,” he said. “Be very careful putting the money into investments or savings vehicles in which you cannot get the money out whenever you want without incurring some sort of penalty.”

For example, even a very safe investment like a Certificate of Deposit (CD) with a reputable and financially sound bank can hit you with a penalty if you need the money prior to the maturity date on the CD, he said.

Good luck!

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This story was first posted in March 2016. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.