Should You Tap Your Emergency Fund to Pay for Holiday Gifts?

If you haven't finished your holiday shopping by now, you may want to get moving. The December holidays will be here before you know it. And if you're ordering items online, you might experience some shipping delays. It's best to get ahead of that by completing your gift list sooner rather than later.

Now, you may be tempted to tap your emergency fund to cover the cost of the gifts you want to buy. And if you have a good amount of money in your savings account, you might think that's no big deal. But raiding your emergency fund to pay for holiday gifts is a move you might sorely regret.

You don't want to leave yourself in a tough financial spot

There's a reason emergency funds are called emergency funds, and not "money for whatever I want or need" funds. Your emergency fund is to help you cover the cost of unanticipated expenses, such as a sudden home or vehicle repair. Your emergency fund is also there to get you through a period of unemployment so you don't have to resort to debt to cover your bills in the absence of a job.

Holiday gifts, on the other hand, are very much a planned expense. There have been plenty of opportunities to save ahead of time for the December holidays. And if you couldn't do that due to having higher bills or for another reason, like being out of work, that's totally understandable. But don't let that drive you to make a decision that might harm you financially.

If you raid your emergency savings to cover holiday gifts, you might end up with a lot less cash in the bank after all's said and done. But what happens if you whittle your emergency savings down from $4,000 to $3,000 to pay for holiday gifts, and you end up needing to make a $3,600 home repair in early 2024? Suddenly, you're looking at taking on debt.

Scale back your gift list to avoid using emergency savings

Data from TransUnion finds that 21% of U.S. consumers expect to spend more than $1,000 on holiday shopping this year. If you're in that boat, before raiding your emergency savings, think about ways you can whittle down your gift list to keep your costs to a minimum. 

It's nice to want to get a $25 gift for each of your children's teachers. If you can't afford that without dipping into your emergency cash reserves, hit up your dollar store for a few cute mugs, buy some inexpensive chocolate to fill them with, and add a nice note. You might, in that case, spend a total of $15 for four teachers instead of $100. You can even do the same for friends and family if you don't have the money to buy all of the holiday gifts you'd like without hitting up your emergency fund.

The whole purpose of having an emergency fund is to be protected when life throws costly surprises your way. So try to avoid tapping your savings for holiday gifting purposes, and instead, remember that in the context of the holidays, it's the thought that counts.