Can I Use My Emergency Fund to Help With Inflation?

Inflation has been surging since the latter half of 2021. And at this point, many consumers are beyond frustrated with it -- and understandably so.

In March, the Consumer Price Index, which measures changes in the cost of consumer goods and services, was up 5% on an annual basis. And that's not even so bad compared to where inflation sat for much of 2022.

If you've been dipping into your savings account to cope with inflation, you're certainly not alone. But should you be using your emergency fund to handle higher bills? Or should you be reserving that money for a true emergency, like a home repair or a period of unemployment?

It's okay to dip in here and there

The purpose of your emergency fund is to help you cover unplanned expenses. And you can argue that inflation is an unplanned expense, to a degree. As such, it's not a terrible thing to be hitting up your emergency fund on occasion to pay for groceries or cover your utility bills if they're much higher than usual.

In fact, if you have enough cash in the bank to cover several months of living expenses, you're better off dipping into your emergency fund than racking up debt on your credit cards. The latter could cost you a lot of money in interest, so if you already have the money, you might as well use it.

That said, if you've had to take an emergency fund withdrawal every month for, say, the past seven months in a row to cover basic bills like food and utilities, then it may be time to try to break that cycle by revisiting your budget and making some changes to your spending. You want your emergency fund mostly intact in case you wind up out of a job, or in case your car stops running and you need $2,500 in a pinch to get it back out on the road.

Take a look at your various bills and flag those that aren't essential. That includes things like subscriptions and streaming services. If you've been taking $100 out of your emergency fund every month to cover your higher costs, you should try to find ways to cut $100 in spending every month instead.

Another option? Try to find a side hustle that allows you to cover your bills without having to raid your emergency fund month after month. That way, you may not have to cut back on any spending at all.

When will inflation cool down?

We're already at a much lower level of annual inflation than we were in mid-2022, so in time, living costs might drop to a notable degree. But that's not looking likely anytime soon. So if you want to preserve your emergency savings, try to break the cycle of dipping in every month to cope with inflation, and instead address the problem via more mindful spending and boosted earnings from a side hustle.

You want to leave your emergency fund as loaded up as possible, especially since there's still a chance a recession could hit later this year. So if you can avoid those small, consistent withdrawals, you'll be better off for it.