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What to do if your emergency fund doesn't cover your emergency

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Westend61/Getty Images/Westend61

For many, 2020 was the rainy day we'd been saving for—or should have been. During the height of the pandemic, many were forced to dip into their emergency funds, which, according to the Bureau of Labor Statistics, can hover anywhere between $1,350 to upwards of $15,000, depending on your age, lifestyle and family size.

And with unemployment fluctuations in the last couple of years, even the best savers may be searching for ways to pay their bills. Will your emergency fund be enough to withstand any other emergencies—like car engine trouble, a burst water heater or unexpected health issues?

Whatever emergencies pop up this year, make sure you know your options for covering unforeseen expenses.

What's considered an 'emergency'?

Whether you're working from home, living off one stream of income where there used to be two, or learning the ins and outs of home-schooling—you may find yourself spending money differently as you adapt to a new lifestyle.

And with all this change, it's tempting to dip into your emergency fund. But what constitutes an emergency? A true emergency will be unexpected, urgent or impact a necessity in your life.

Is this unexpected?

While Christmas and routine medical exams may creep up on us every year, foreseeable expenses are not considered an emergency. A true emergency is unexpected—meaning you were not able to budget for the expense beyond your emergency fund. For example, this could include a car accident, job lay-off or unexpected travel to handle a family crisis.

Is it urgent?

When it comes to pulling from your emergency funds, it's critical to distinguish true urgency from impulse purchases. Repainting your house can wait, but if a water heater bursts, there's no time to lose. Consider whether you can go without the purchase for any length of time and still maintain your quality of life, comfort and safety.

Is it necessary?

An emergency is an obstruction to a fundamental need. Ask yourself honestly: Is this a want or a need? A great sale doesn't mean you need to buy a new appliance, but if your refrigerator breaks in the middle of the summer, then of course it makes sense to buy a new one.

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What to do to supplement your emergency fund

When you have a true emergency on your hands, there may be options to help you cover your situation beyond your emergency savings. But before you pull out your credit card, consider these options for funding your emergency so you can avoid racking up debt:

If you have a medical emergency:

Medical emergencies can be pricey, but there are ways to minimize costs if your emergency fund doesn't cover them. Take a close look at your medical bills and make sure there are no additional or accidental charges. Billing mistakes happen all the time. In fact, according to recent research, as many as 80% of medical billscontain errors. And an audit by Equifax found that bills more than $10,000 averaged a billing error of $1,300. Ask for an itemized bill and an Explanation of Benefits (EOB) to see exactly what was billed to your insurer and what you are expected to pay out of pocket.

You can also lookup the cost of medical services on the care providers' website, or review the cost of services through resources like Healthcare Bluebook. When you know the true cost of a medical service, it will be much easier to negotiate your medical bills—and you can negotiate your medical bills.

If you have emergency car expenses:

If you don't address car issues quickly, they'll only get worse. First, make sure you're taking advantage of all the benefits available in your car insurance, like free emergency roadside assistance. If your auto insurance doesn't cover this, call the car dealership where you purchased your car and find out whether they provide any emergency services. You can also review your credit card benefits—some credit cards offer free roadside assistance as well.

If you have an unexpected change in income:

If you were out of work at some point during the early onset of the pandemic, you were not alone. In June of 2020, roughly 47.2% of the American population was jobless. If you're become unemployed and have trouble paying monthly expenses due to changes in your income, find out what resources are available to you.

  • Find out if you're eligible for unemployment benefits and submit an application.
  • Suspend rent or mortgage payments. Many state and local governments currently have policies to support homeowners experiencing financial stress due to the coronavirus. If you are unable to make your mortgage payment, reach out to your loan servicer (listed on your statement) to ask about any forbearance or deferment options. It's important to stay in contact with the mortgage servicer as your situation changes. For renters, speak directly with your landlord and explain your situation and negotiate a solution.
  • If you have a private student loan, reach out to your private student loan servicer to explore any payment deferment options available.
  • If you need to take out a loan, seek out personal loans with low interest rates. Luckily, interest rates are historically low.

    If you have unexpected household changes:

    We're spending a lot more time at home, which could lead to more wear and tear and potentially more unexpected household maintenance emergencies. If your emergency fund won't cover the cost, you have options:

    • Call on your community. Ask your friends and family if they have a recommendation of a handyman you can call. Some contractors offer discounts for word-of-mouth referrals.
    • Do it yourself. If it's a small repair like a leaky faucet, take a quick look online to see if you can't find a DIY video. With a few tools and some guidance, you may be able to fix the problem without paying a dime.
    • Sell your stuff. Is it finally time to sell that armoire? Take a good look around your house – you may have unnecessary items lying around that you can easily sell to make up the cost. The average American spends $18,000 a year on non-essential items, or roughly $1,500 a month. Where would you be spending that money this month? Reallocate it to your household repair.
    • Shop around. If you have to hire a contractor, take a look at sites like HomeAdvisor to make sure you're getting the best possible rates.
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      Rebuilding your retirement savings

      After a rainy day, building up your savings again can be intimidating. But if you can make it through this emergency, you can create a new, stronger emergency fund the next time uncertainty knocks on your door. Start by reviewing the cost of your last emergency and work toward making periodic payments to yourself until you save up that cost again. Even if you put away $10 a week, you'll feel much better knowing you're making progress.

      Not sure how much of your check you should be saving? Learn more about building an emergency fund in saving for the unexpected. Connect with a financial advisor to create a financial plan based on your needs and goals.