Is It OK to Tap Your Emergency Fund Due to Higher Living Costs?

It's a route many people are taking these days.

There's a reason financial experts urge people to build themselves emergency savings. You never know when an unplanned bill, like a home or car repair, might pop up out of the blue. And without money in savings, you might struggle to cover an expense like that, or rack up debt because of it.

Furthermore, you never know when you might fall victim to a layoff at work. Having money in the bank could make it possible to pay your bills while you look for work, thereby avoiding debt in the process.

These days, a lot of people are finding that they have to dip into their savings to cover higher living costs. But is that something you should be doing? Or should you be reserving your emergency fund for true emergencies?

Inflation is rearing its ugly head

Inflation has been rampant for well over a year now. As a result, consumers are being forced to spend more money on everything from groceries to gas to apparel. Throw in the fact that rent and housing prices are up on a national scale, and there's really nowhere to look for relief.

As such, a lot of people are finding that their paychecks don't do a good enough job of covering their expenses in full. If you're in that boat, and you have emergency savings to tap, you may be wondering if it's okay to dip into your cash reserves.

The answer? Absolutely.

Some people think that their emergency funds should be reserved for major expenses only -- say, a $2,000 car repair. But if you're in a financial situation you didn't expect -- out-of-control inflation that makes your paycheck fall short -- then it's perfectly okay to dip into your savings to pay for the essentials your earnings can no longer cover.

That said, if you're unable to cover your living costs in full based on your paycheck alone, and you're dipping into your savings to bridge that gap, you should also be making an effort to cut back on non-essentials. It's okay to use your savings to pay your utility bills or to put gas in your car. But you really shouldn't be using your emergency savings to pay for takeout or things that you don't absolutely need.

When will inflation slow down?

Until inflation levels taper off, many people might be forced to keep dipping into savings to cover their basic costs. We can't say for sure when inflation will reach a more moderate level, but the Federal Reserve is aggressively raising interest rates in an effort to slow things down.

Of course, higher interest rates mean borrowing is getting more expensive, which is all the more reason to try to preserve your emergency fund. If you run out of cash reserves and wind up having to take on some debt, that debt could end up being costly. That's why it's best to minimize the extent to which you dip into your savings -- all the while reminding yourself not to feel guilty if you have to take an occasional withdrawal to cover an essential bill.