Guide to What Is (and Is Not) a Financial Emergency

By Rebecca Lake · July 20, 2022 · 8 minute read

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Guide to What Is (and Is Not) a Financial Emergency

A financial emergency is any situation that you did not anticipate or plan for that affects you financially. Examples of financial emergencies can include a job loss, unexpected car repair, or medical bills resulting from an accidental injury.

Six out of 10 American households experience at least one financial emergency per year, according to the Federal Emergency Management Agency (FEMA). Financial experts recommend planning ahead for life’s curveballs by saving an emergency fund.

Knowing what is a financial emergency–and what isn’t–can help you decide when it makes sense to tap into your cash reserves or turn to credit to cover the gap.

Read on to learn:

•   What qualifies as a financial emergency

•   What doesn’t count as a financial emergency

•   How to build an emergency fund

•   How much money to keep in an emergency fund.

What Is Considered a Financial Emergency?

FEMA defines a financial emergency as “any expense or loss of income you do not plan for.” There are a number of different scenarios that could fit the definition of a financial emergency. Here are some of the most common financial emergency examples that a typical household may encounter.

Home Emergencies or Repairs

In addition to the regular costs of home ownership, it’s also important to be prepared for unexpected expenses that may crop up from time to time. For example, you may need to replace your HVAC system if it stops working or get a new roof if yours springs an unfixable leak. Other financial emergencies examples include appliance repairs or needing to pay your deductible if you have to file a homeowner’s insurance claim for damages.

Car Emergencies or Repairs

If you own at least one vehicle for long enough, odds are that you’ll have a financial emergency at some point. Your transmission might go out, for example, or you find out that you need to replace all four tires in order to pass inspection. These are costs that you may not plan for that but need to pay to keep your car on the road.

Loss of Income

There are different scenarios where a loss of income might constitute a financial emergency. If you’re the sole breadwinner for your household, for example, and you get laid off, fired, quit, or can’t work because of an illness or injury, this situation can directly impact your ability to pay the bills.

Emergencies That Affect Your Health

A health issue, major or minor, could end up being a financial emergency if it affects your ability to collect a paycheck. This kind of situation may also trigger a money emergency if you have to pay for some or all of your medical care out of pocket. Health insurance may cover some of your care if you get sick or injured, but it doesn’t always cover all of your costs. And a financial emergency of this nature can be made worse if you’re unable to work.

Unexpected Loss of a Loved

Losing a loved one can be upsetting enough on its own, but it can also create financial pressure. If you need to travel to attend the funeral or you’re expected to contribute to final expenses, you can find yourself in a scenario that’s a financial emergency.

Natural Disasters

Storms, droughts, floods, and earthquakes seem to be in the news more frequently these days. Any one of these events can disrupt your life and cause loss of income as well as unexpected expenses. If a huge storm floods your town, your home might suffer damage and, even if you’re insured, other expenses could quickly pile up. Also, if your place of business were to be flooded, you might be out of work and therefore income for a while.

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What Is Not Considered a Financial Emergency?

Now you’ve learned when to use an emergency fund and how much money you might want to have waiting should you encounter one of these situations.

There are some things, however, you might spend money on that don’t meet the strict definition of an emergency. If you’re curious about what kinds of situations may feel urgent but aren’t actually financial emergencies, here are some examples.

Taking a Vacation

A vacation might feel like a “need,” especially if you could use some time away from a stressful job. But vacations generally are not considered to be examples of financial emergencies because they are not unexpected. Instead, you can plan and save for a trip at a pace that works for your budget.

Going to or Planning a Wedding

Being a guest at a wedding is optional, though you may feel social pressure to RSVP that you’ll be there. The costs of attending can add up, once you factor in gifts, new clothes to wear to the event, and other expenses. Still, those are not financial emergencies since you can always say no. Likewise, the cost of your own wedding is not a financial emergency either in that sense that you can plan and save for it.

Purchasing Gifts for Someone

Birthdays, holidays, graduations, and other special occasions might call for you to present someone with a gift. But a gift is not classified as a financial emergency since you generally have some advance notice that an occasion is coming up. Plus, it’s up to you how much you spend. While you might want to purchase something lavish, something affordable (a book, going out for coffee or a drink) or simply a heartfelt card can suffice when money is tight.

Putting Down a Down Payment

If you plan to buy a car or a home, putting money down can reduce the amount you need to finance. This will then save you money on interest over the life of the loan. Down payments are money that you save over time, not funds that you have to come up with on short notice. While it may definitely feel like an emergency when you find your dream house but haven’t yet saved enough money to buy it, this doesn’t meet the definition of a true financial emergency.

Replacing Items in the House That Are Not Essential

Some things around the house you may need to replace without much forethought or planning. The list includes appliances, HVAC systems, and roofing that fails to do its job. As mentioned above, these common home repair costs can indeed qualify as financial emergencies. But other household expenditures, like new kitchen countertops or new furniture, are items you can budget and save for, so they’re not financial emergencies.

Determining How Much Emergency Savings to Have

The financial emergency examples listed above underscore why having an emergency fund is important. When you have ample emergency savings in place, it’s easier to handle unexpected expenses without stress and without having to use high-interest credit cards or loans to pay for them.

So if you’re thinking, Should I have an emergency fund? the answer is almost always going to be yes. The next question to tackle is how much to save.

Personal finance experts often answer the “How much should I have in my emergency fund” question by recommending three to six months’ worth of expenses. So if your monthly expenses are $3,000, you’d aim to save $9,000 to $18,000 for an emergency fund. An emergency fund of that size should in theory be able to get you through an extended financial crisis.

Recommended: Ensure you’re prepared for the unexpected by using our emergency fund calculator.

Whether that amount is too high or too low will depend on several things. A few examples of important factors: the types of financial emergencies you’re most likely to encounter, how much you’d be able to cut expenses if you had to, and how quickly you’d be able to replace lost income should the need arise.

In the case of something like a job loss, for example, a smaller emergency fund might be sufficient if you can live leanly and no one else depends on you financially. Or you’ll likely be okay if you’re able to find a replacement job quickly and have one or more side hustles to supplement your income. On the other hand, if you’re married with three kids, a much larger emergency fund might be needed to sustain you until you can find another job.

Banking With SoFi

An emergency fund can save the day when a true financial emergency comes along. Knowing the difference between what is a financial emergency and what is not can help you to make the most of the money you’re saving.

If you’re looking for a secure place to keep your emergency fund, SoFi can help. When you open a bank account online with us and set up direct deposit, you can get checking and savings in one place with a competitive interest rate. And there are no fees to detract from the interest you’re earning.

Bank smarter with SoFi and watch your money grow faster.


What are some real life examples of financial emergencies?

Real life examples of financial emergencies include an unexpected job loss, an illness or injury that prevents you from working, or an unplanned home repair. A financial emergency may be a one-time expense, like a car repair, or an ongoing situation that requires you to rely on savings to cover expenses.

Why might I need an emergency fund?

Having an emergency fund is a good idea if you own a home or vehicle, have concerns about what might happen if you were to lose your job, or simply don’t want to be caught unprepared when an unexpected expense comes along. You may also want to have an emergency fund if other people (i.e., a partner, spouse, or children) depend on you for income.

Is it recommended that I build an emergency fund?

Yes, financial experts generally recommend that most people have some type of emergency fund in place to cover unanticipated expenses. Going without an emergency fund may only make sense for people who have accumulated substantial savings or investments they can draw on to cover unplanned events.

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