Here's a goofy question for you. I have done what you said and have an emergency account. But when I have an emergency, like I do now (dentist bills way higher than I expected because I need THREE crowns to the tune of $800 each), I don't want to use that money because I like having it there. I want to use credit cards instead. Should I charge the bills or use the money in my account?
That is not a weird query at all, because I know that feeling well! I also despise tapping into savings that I've diligently built up. Amassing it took so long and besides, watching it grow is exciting. Using those carefully cultivated funds for things such as medical bills is not enjoyable. It's, well, depressing.
You do have to get over this
psychological block, however. That is what the money is there for, and using it in this way will result in something just as wonderful as accumulating assets: no liabilities.
Put the cards down and pay for the crowns with the cash you have in that special account. Trust me, if you added them to the cards, the ensuing bill that you get from your credit card company in a few weeks will destroy any pleasure in keeping your emergency fund intact. If you pay over time, as I'm sure you know, interest will be added to the balance. The money you would pay for those finance charges could be going to your savings account. Why give it to the credit card companies if you don't have to?
Now, there is one way to leverage your card. If you have a rewards program with your card, charge the bill, then pay it in full with your emergency money before interest accrues.
The best way to use a card is to think of each charge as cash deleted from your wallet or checking account. That means always asking yourself: “Will I have enough money to pay all of this when I receive my statement?” If the answer is yes, swipe away. If not, there's a trick to maximizing your cards: Charge something you already have in your budget, such as a monthly gym membership, and pay on time and in full. Those payments will reflect well on your credit report.
Regarding your emergency fund, what if you split your one savings account into two separate accounts? The first should be only for those things that you may need in a crisis. That would include unexpected health care costs, plumbing issues for the home or car maintenance. Boring, drudgery stuff.
The other will be your “love to grow” account. Make it precious. It could be for the little luxuries you would like to have but put off or perhaps for an
annual vacation. Or just enjoy the beauty of those numbers getting bigger, with no particular financial destination in mind. Ultimately, you'll find something to do with it that doesn't involve essentials, and when you do dip in, you can replenish it at will.
I am proud of you for developing such a great habit of socking money away for expenses that fall outside the normal day-to-day routine. While using credit cards as a source of emergency funds is common, it's rarely beneficial. All too often it just leads to overwhelming debt. You're absolutely doing the right thing, so keep it up!
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