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Best Practices for Tapping Your Emergency Fund

By Catherine Brock – Updated May 12, 2020 at 8:12AM

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Need to live off of your emergency fund until that unemployment check arrives? Here's how to do it.

You set the money aside for a rainy day and, now, that rainy day has arrived. And this is no springtime shower -- it's more like an all-out hurricane you didn't see coming. This financial storm was brought on by the coronavirus pandemic, which may have cost you your job and even some of your retirement savings.

In the span of seven weeks starting in mid-March, more than 33 million American workers filed for unemployment. That's an unprecedented number, considering that the weekly average of filings this year prior to mid-March was 350,000. The federal government did expand unemployment benefits by passing the CARES Act in March, but backlogged state unemployment offices are taking weeks to get those benefits into American households.

Man budgeting at his computer

Image source: Getty Images.

If you're one of millions waiting for your unemployment check to arrive, you know you'll need to dip into your cash savings soon. To avoid over-spending or accidentally incurring bank charges, follow these best practices for tapping into that emergency fund.

1. Know the restrictions on withdrawals

Did you know you can only take six withdrawals from your savings account each month? It's true. A federal law called Regulation D restricts withdrawals from cash savings and money market accounts. Regulation D is in place to make sure banks have enough cash on hand to meet their customers' needs. If you exceed the six-withdrawal limit, your bank is likely to charge you a fee.

Each bank enforces withdrawal limitations in its own way. For example, your bank may not count certain types of transactions toward the limit, such as ATM transfers or withdrawals. Check with your bank on its rules so you can plan around them. Generally, you can expect that online transfers, debit card transactions, overdraft transfers, and ACH transfers will count toward the monthly withdrawal limit.

In late April, the Federal Reserve announced an interim final regulatory rule to suspend enforcement of the six-withdrawal limit in light of the coronavirus. However, that measure might prove to be only temporary, so it's important to keep the general rule in mind.

2. Budget and transfer funds to your checking periodically

Because of those savings withdrawal limits, you can't count on reaching into your emergency fund every time a bill arrives. So, you'll have to get organized about your upcoming expenses. If you don't have a budget today, make one. Pore over your banking transactions for last month and the month before. You want to know:

  • What bills are due, and when
  • How much you spend on food and gas weekly
  • What charges are automatically applied to your checking account, and when

That information will help you accurately predict how much money you'll need for the next two weeks. You can then transfer funds from your savings to your checking two times monthly to avoid overdrafts as bills come due.

3. Make a calendar

One strategy for stretching your cash on hand during this recession is to avoid paying bills early. You obviously don't want to be late with your payments, because that exposes you to unnecessary fees. But you don't need to pay anything before the day it's due, either.

The only exception is if you're rolling over balances on a credit card. In that case, paying early will lower your interest charges for the month. Just make sure you know which billing cycle your payment gets applied to. If you accidentally pay before your statement closing date, you'll still owe the minimum payment for the following month.

Make a calendar of your due dates and statement closing dates on your credit cards. Be strategic on the timing of your bill payments to conserve as much cash as possible.

4. Write down lessons learned

Before the coronavirus pandemic, you may have tapped into your emergency fund for things like car repairs and unexpected medical costs. But this might be the first time you'll dip into that fund repeatedly due to a loss of income. Use the experience to develop your own best practices. Identify the cadence of transfers from your savings to checking account that works best for you. Note any savings opportunities as you review your previous banking transactions. And document your best method for tracking bill due dates, be it an app, appointments on your calendar, or simply writing them down on paper.

Also evaluate your comfort level with the size of your emergency fund. If you wished you'd saved more, set a reminder to yourself to increase your savings deposits once you get back to work.

Plan emergency fund withdrawals carefully

It takes a decent amount of foresight and organization to weather a financial storm like this one. The first step is getting a detailed understanding of your expenses. Next, plan how much you'll need to pull from your savings and how often. Take note of what's working and what isn't as you dole out the cash. This will help you in the future, too. The more detailed you can be today about your spending, the better you'll be at managing your money once you get back to work.


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