What constitutes an emergency?

So you're surfing Priceline.com or your favorite discount travel site and you see the deal of a lifetime to paradise. Ah, the tropical drinks, sandy white beaches and all the umbrella drinks your heart desires. You want this trip, you need this trip. But you haven't set aside any vacation money at all. But there is that emergency fund just sitting there gathering its piddly interest. You could swipe it and put it back later. Your job is stressing you out, surely this qualifies as an emergency right? Wrong. Don't touch that emergency fund.

What an emergency fund is:
1. There for an emergency. Flat tires, appliances that have died and the like.
2. Three months of your salary in case of job loss. You said your job was stressing you out. This is money to tide you over when you get that new job. Don't forget, these jobs may be on different pay schedules and you might skip a check or two.
3. Co-pays for sudden illnesses. Or a new pair of glasses because the old ones broke.

What an emergency fund is not:
1. Vacation money. You should set up a new fund solely for this purpose.
2. A new pair of Gucci glasses because they're all the rage.
3. A big screen tv because the big game is coming up.

In short leave that money there for what its intended for, to tide you over in case of an emergency. If you want to take a vacation or go on a spending spree, open up a new sub-savings account. This way, what ever is in this account is fair game and can be used for whatever you heart desires. And hopefully, with any luck, you won't have to ever touch your emergency savings.

Till next time...