We’ve heard the phrases, discussed our strategies, tried to forget about the money when we make a budget, and several other things pertaining to the vital emergency fund. Save up an emergency fund :: How much is in your emergency fund? :: Is an emergency fund necessary? :: Can I have an alternative emergency fund?

We all have a firm grasp of what a fund is. We can also agree that we may need some cash in case of an emergency. But the real question is, what is an emergency? Rarely is the appropriate time for using an emergency fund more than briefly mentioned. Here are examples of real emergencies when it is OK to dip into that emergency fund:

A natural disaster is a pretty obvious emergency. In this case, we can expand the impact of our emergency fund into insurances and precautions, but when your place of employment is leveled, they do not pay you to help with the cleanup. A cog in society is what is needed instead, someone to help bear the workload of a communal clean-up and restoration process. This is where the emergency fund is necessary. Use it to make monthly payments on things like cell service, home and car loans, insurance premiums that you aren’t making claims on. You will also have situational costs such as childcare while volunteering, water, gasoline for generators, an extra round of shots for the family.

A trip to the emergency room is also an emergency worth saving for. The potential of an illness, injury, or other immediate attention also has the potential for the exorbitant costs of basic pain killers, let alone the doctor’s attention, room rental, and equipment and lab fees. This is a more personal kind of emergency, where employers and bill collectors are going to be less lenient. Having a month’s worth of bills plus in an account for just this opportunity can diffuse the financial part of the stress.

Economic downturn is another type of emergency to be prepared for. Rushes on banks can leave you out of cash if you need it. Having an emergency fund separated from your normal accounts can keep your toes out of the rising murk as people around you are losing their livelihood as banks fail. Less drastically, if the cost of gas doubles, will you still be able to get to work while you find an alternative transportation method, or closer job? Will you be eating rice for a week while you save to catch up with the rising cost of produce?

Losing a job is more than losing an income, it increases the value of each dollar you have the moment you’re off the payroll. This is all the money in your world at this time. Change spending habits, develop a new budget strategy, and make it last: there is no telling how long you’ll be out. Your comfort, what standard of living you retain, is proportional to your emergency fund buffer.

Legal problems can be sneaky. Forget to de-ice your front stoop and the delivery service sues you and you need a lawyer. Discover you’ve bought a lemon of a car and need legal advice. Get pulled over and technicalities abound and you need good defense council. Your kid brother needs bailed out of jail. You’re asked for a divorce. It can happen to anyone. You could lose hours, or your whole job. You could be in courts for months, even years. Legal services are known for their expense, but the world keeps turning, asking for your money, no matter what you’re wrapped up in.

Life hits your hard. Trent over at The Simple Dollar describes the financial erosion of someone in psychological turmoil. Like with legal, life keeps ticking. If you don’t have a way to give yourself time with the insulation of an emergency fund, you’ll have to work, pay bills, and make budget decisions just like every other day, right through a cloud of emotion.

Emergency travel really exists? In a world where family lives and employees work scattered across the country, what might be an local family tragedy to your mom can be a half-a-planet away for you. Or, the specialist you need to see is six states away, and health insurance doesn’t cover travel. You will only get the lucrative dream job offer if you leave now to meet him at six o’clock this evening. Your sister is on her R and R from a war zone–four states away from where you are. What you consider urgent travel is your business, but using a dedicated fund is better than trying to squeeze it out from your food budget.

Major repairs or replacements are many times unexpected budget-killers. If you need a new water heater today, if you have termites and must rebuild a portion of your house when the exterminator is through, your washer explodes, your daughter throws the wii-stick through the new flat-panel: it is going to cost you. Minor emergency compared to some of the others, but many times just as financially ominous. Issues compound. If your brakes go out of your main transportation vehicle, you need to find a new ride to work.

Mistakes do happen. Late fees, clerical errors at the bank, missed payments, double credit card charges, overcharges from insurance companies, misplaced. Sometimes you need to pay for others’ mistakes before they get a chance to reimburse you. Sometimes these mistakes can be hundreds of dollars, and your emergency fund should be able to back up your regular wallet.

Identity theft may end up costing you despite all your best efforts. It takes a good couple of years to clean up the mess after the fraud is found and halted. In the meantime, you’ll need money between the time your accounts are depleted and the time the institutions reimburse your money: this span might cover a due date. Depending on how geographically widespread your doppelganger has roamed, you may have to spend a pretty penny on long distance calls to police departments filing claims. You’ll spend money on stamps or faxes sending correspondence, case file information, and proof of identity to everyone you don’t recognize on your credit report. Finally, you may not get any sort of compensation from the perpetrator. Only 1 in 700 thieves were caught in 2006. Some figures on costs to victims that same year are listed at the
FTC’s site (pdf)

By no means is this list cut-and-dried. Each household has the responsibility to explore this topic:

• Take stock of what you and those under the same financial umbrella may perceive to be an emergency
• Share responsibility for filling it up and keeping it filled
• Bring up any new ideas with each other when something arises in the news or to people you know
• Maybe keep a concrete list somewhere that you both agree on
• Discuss things that aren’t considered emergencies for contrast
• Be clear, honest, and precise about the discussion

If you know what an emergency is, it will be easily recognized when it arises. If you talk about emergencies and the purpose of your emergency fund, you can adjust your goal amount to cover you when you need it most.

Image courtesy of Chris.Violette