Conventional wisdom says that the money in an emergency fund would be earmarked for “unexpected expenses.” That is true. However, let’s think about what expenses actually are (and are not) unexpected.
Expenses that are not unexpected: monthly and annual bills
- Regular annual or semi-annual expenses are not unexpected: these include property taxes, car insurance premiums, annual life insurance premium, eye exams and other once-a year expenses. You can plan and prepare for these expenses by setting aside a fixed amount each month. Since you know these expenses are coming, they cannot truly be considered emergencies.
- Occasional maintenance or repairs, such as a leaky roof or a dishwasher breakdown are not fully unexpected. either. The same is true for other ordinary home repair, care repair, and moderate medical bills. You may not know exactly what expenses will come up, but if you have a body, a car or a home, you need to expect to spend money on maintaining them. Setting aside money each month will build a fund for home repair and maintenance, car repairs, and ordinary medical bills.
What expenses are truly unexpected?
An emergency fund is intended for expenses that fall outside the categories of “annual bills” or ordinary maintenance of home, car, and health. Unexpected expenses are events like losing your job or being struck by a massive, out-of-the-norm health-related bill beyond what insurance will cover. Emergency funds are designed for expenses that are highly unusual, not for common occurrences.
Bottom Line: It is possible that the savings account you were labeling as an “Emergency Fund” is actually your “Yearly Expense and Maintenance Fund.” That’s a good fund to have. But perhaps you also need an emergency fund.