What Actually Counts as a Financial Emergency?

Financial emergencies can hit at any time. A job loss, car breakdown, or medical bill can shake your finances and your peace of mind. That’s why it’s important to know the difference between a true emergency and something that just feels urgent in the moment. 

As of 2024, only 45% of adults in the United States didn't have three months' worth of expenses saved in an emergency fund.[1]

Here, you’ll learn what actually counts as a financial emergency and what usually doesn’t. Explore how to prepare for the unexpected.

What Qualifies as a True Financial Emergency?

A true financial emergency is a situation where you face an urgent need for money and don’t have enough time or options to adjust your regular budget. These events usually affect your health, housing, or basic survival.

Common financial emergencies include:

• Medical emergencies. 

• Job loss or major income drop. 

• Car repairs.

• Unexpected housing costs.

• Emergency travel.

Accidents, ER visits, or surgeries that aren’t fully covered by insurance can lead to sudden medical bills. Job loss or reduced income may leave you without enough to cover essentials. If your car breaks down and you rely on it for work or school, that’s urgent. Major home repairs, like a broken water heater or furnace, can’t wait when safety is at risk. A family death or crisis may require immediate travel that strains your budget.

These situations usually hit without warning, and you often don’t have time to save for them. That’s what your emergency fund is for. 

Recommended: Where to Keep an Emergency Fund and How to Get Started 

What Usually Doesn’t Count as a Financial Emergency

Some money problems feel urgent, but they don’t count as true emergencies. These are usually expenses that you can plan for or postpone.

What may not be considered a financial emergency:

• Holiday gifts or vacations. 

• School supplies or tuition. 

• Routine car maintenance. 

• Impulse purchases. 

• Late fees or past-due bills. 

These expenses are predictable and not essential for survival. Things like school costs are important, but you usually know they’re coming. Routine car care, like oil changes and tires, should be part of your regular budget. A TV on sale or a concert ticket might feel urgent, but it isn’t. Past-due bills or late fees matter, but if you’ve known about them for a while, they don’t count as emergencies.

Spending your emergency fund on these kinds of expenses can leave you unprepared when a real crisis comes up.

The Gray Area: When It’s Not Obvious

Sometimes it’s hard to know if something is truly a financial emergency. Life isn’t always black and white. A few situations fall into the “it depends” category.

Here are some examples:

• Dental work.

• Pet emergencies. 

• Childcare problems. 

• Legal issues.

A filling might not be urgent, but a cracked tooth causing pain likely is. A life-saving surgery for your pet may count as an emergency, especially if they provide support or companionship. If your babysitter quits without warning and you risk missing work, that situation may require quick action. Legal fees to prevent eviction or respond to a court case could also become urgent depending on the circumstances.

In these cases, your decision depends on how the expense affects your health, income, or safety. If the cost threatens your ability to live or work, it may qualify as a true emergency.

How To Prepare for True Financial Emergencies

The best way to handle emergencies is to plan for them ahead of time. You can do this by setting up an emergency fund and keeping it separate from your regular savings or checking account.

Here are some steps you can take to get started:

1. Open a savings account linked to your checking account.

2. Set a savings goal and use budgeting tools when helpful.

3. Set up automatic deposits from checking to savings or consider round-up savings.

A high-yield savings account may help your money grow. And, even $10 or $25 a week adds up fast. Keep your emergency fund in an account that’s easy to access but not so easy that you’re tempted to dip into it for wants. You can also explore tools like money market accounts or CDs and IRAs for longer-term emergency savings.

Deciding How Much Emergency Savings to Have

How much you need in your emergency fund depends on your lifestyle, job stability, family size, and other factors. 

A general rule is to start with a small amount, like $500 to $1,000. This can help cover small emergencies, such as car repairs or a trip to urgent care. After that, you can aim to build up to three months of expenses. It can give you enough to get by if you lose your job or can’t work.  

Eventually, you may want to work up to an emergency fund with enough to cover six months or more in living expenses. This can be ideal, especially if you’re self-employed, have a single income, or face irregular income. 

To help calculate personal goals and stay on track, use Centier’s financial resources. And remember: your emergency fund should be for emergencies only. If you're also saving for a down payment or vacation, consider opening separate accounts for those goals.

Protect Your Future With the Right Emergency Fund

Not every surprise bill is a crisis. When you know what actually counts as a financial emergency, you can make better choices with your money. It also helps you protect your future by saving for what matters most—your health, your home, and your ability to earn an income.

Set up your emergency fund today so you're ready when life takes an unexpected turn.

Ready to start your emergency savings fund? Open a Centier savings account today.

Source: 

[1] https://www.federalreserve.gov/consumerscommunities/sheddataviz/emergency-savings.html