3 Questions To Ask Before Dipping Into Your Emergency Fund

This faith and finance podcast is underwritten in part by Christian Credit Counselors. If you're struggling with credit card debt but don't know where to start, our trusted partner Christian Credit Counselors offers a debt management program that can get you out of credit card debt 80% faster while honoring your debt in full. Contact them to get out of debt today at ChristianCreditCounselors.org. Having an emergency fund is great, but how can you ensure it's there when you really need it?

Hi, I'm Rob West. It's easy to set aside money for a rainy day, but what happens when we start dipping into that fund for things that aren't truly emergencies? Today, we'll consider three questions you should ask before dipping into your emergency fund, and then it's on to your calls at 800-525-7000. This is faith and finance, biblical wisdom for you. Well, the Bible is filled with pointed messages that we should take to heart and memorize so they pop into our heads when we need them most. One such verse is Proverbs 21 20, which, as you might expect, we cite fairly often here on the program.

It reads precious treasure and oil or in a wise man's dwelling, but a foolish man devours them. It's a warning against spending everything we earn, calling it foolish because it leaves us unprepared for the inevitable mishaps of life on Earth. Most of us have experienced a financial emergency at some point in our lives.

They may be relatively minor, a tire goes flat, or they could be significant, a huge medical bill hits. But whether minor or major, we all run into unexpected expenditures. Whether it's our cars breaking down or a random house repair, we can avoid stressful times through some financial preparation. An emergency fund is one of the best tools around and financial management because while it's important to have a strong offense in building wealth, you equally need a strong defense. You want an introductory emergency fund generally between 1000 and $1500 that sufficiently covers most minor emergencies. However, once you've paid off all your debt, besides your mortgage, and you're receiving your company's match, if you have one, it's crucial that you increase that emergency fund to three to six months worth of living expenses to protect yourself from a more significant financial crisis, like a job loss. This larger fund acts as a safeguard, helping you avoid unnecessary debt when major financial disruptions occur. However, having an emergency fund is only half the battle.

The other half is knowing when it's appropriate to use it. It's easy to dip into those savings for non emergencies, but doing so can leave you financially vulnerable. So how do you determine if an expense qualifies as an emergency? Here are three questions to ask before tapping into your emergency fund.

Question one, is it urgent? Does something need to be fixed or bought right now? Or can we wait and save up for it? If a so called emergency can wait, it most likely doesn't fall into the emergency category.

If you're unsure whether something constitutes an emergency, try waiting 30 days before using your emergency fund. Obviously, that doesn't work if it's a car repair job and you only have one car. But if you have two cars, maybe it can wait until you've saved up something to put toward the repair.

Question number two, is this necessary? Sadly, our purchases and debt struggles demonstrate that many people struggle with discerning between a need and a want. For instance, buying a new car is a want, not a need.

If you need transportation now, opt for a cheaper used vehicle and save up for a more reliable one over time. Question number three, is this really an unexpected expense? There's a huge difference between getting fired and forgetting to save up for Christmas presents. Birthdays and Christmas happen at the same time every year, so these are not considered unexpected expenses, no matter how poorly we've prepared. These questions will prevent you from using emergency funds on things that don't fall into that emergency category. If we can honestly answer yes to each one, then go ahead and use the fund. But does that mean you should just wave your debit card at it and make it go away?

Not at all. You still have to be careful, even when emergency fund spending is justified. Make sure you spend as little as possible.

Use the car example again. You may have an accident and need major repairs that are not covered by insurance. Hopefully you've been saving for a new car anyway. You can then use some or all of that money for repairs or replacing the vehicle if need be. That will minimize the hit on your emergency fund. Also, before using emergency funds, take a serious look at your budget to find any areas you can trim. Can you temporarily reduce regular spending to make your emergency money go further? That will also help you rebuild your emergency fund as quickly as possible and back up to the ideal three to six months of living expenses.

On one final and important note, you always want to have sufficient savings so that in times of scarcity, you can still give generously and save what you need to and live with peace of mind. I hope that's helpful. All right, your calls are next. 800-525-7000.

We'll be right back. Are you looking for a financial professional who aligns with your biblical values? Certified Kingdom Advisors are trusted financial, legal, or accounting professionals who have completed a rigorous certification program to ensure they provide biblically wise financial advice as part of their practice.

You can find a local CKA professional in your area by going to faithbuy.com and clicking Find a CKA. A short video webinar about that is available at soundmindinvesting.org. Financial wisdom for living well.

Soundmindinvesting.org. Great to have you with us today on faith and finance. We're taking your calls and questions today on anything financial. That number 800-525-7000. That's 800-525-7000. We'd love to tackle whatever is on your mind today as we look at your questions, the issues you're facing in your financial life through the lens of Scripture. Again, that number 800-525-7000. Let's go to Chicago. Hi Grace, go ahead.

Hi, I'll make this as quick as I can. I have to take the RMD this year and I want to get a qualified... Charitable distribution? Right. I have deferred compensation and they said they can't do that. So I want to know how do I roll it over to an IRA? Does it cost money to do that? Do I have time before the end of the year? Yes, you do and you absolutely should be able to. So with a qualified plan, a deferred comp plan in just about every case, I mean, you don't need to verify this with your plan administrator, but in just about every case, you absolutely can roll that out to an individual retirement account. Although you wouldn't want to wait till the last week of the year to do it.

You've got plenty of time now. So what you would want to do is choose an IRA provider that's a financial institution or a broker. And I think perhaps even before that is deciding how you want it managed because one of the options or one of the features, if you will, of an IRA is that there's virtually unlimited investment choices, which is great unless you don't know which ones to pick. And so if you're going to do it yourself, that's fine.

Just make sure you're ready for that. And then you pick the financial institution or broker of choice, roll it over. And as soon as it gets there, as long as you're 70 and a half or older, you can absolutely do that, which you are if you need to take an RMD, you can do that qualified charitable distribution where it goes directly from your IRA and the institution holding it and they cut a check straight to the ministry or the charity. And if they receive it, you know, they can use 100% of the money, it counts towards your RMD and you never recognize it as income, which in every other case, when you're taking money out of an IRA or a deferred comp, you are going to recognize it as income.

This is the only way to do it where that's not the case. Now, if you want an advisor to enter the equation, then you would do that before you select the IRA provider. Because you would want that advisor to be able to say where he or she wants to custody those assets based on their ability to manage it. But give me your thoughts on all that, Grace. Well, that makes sense to me that that's very helpful.

How do you choose an advisor? And does it cost money to do this rollover? It should not. No. I mean, if anything, there might be a transaction fee that's very small, $25 or $50.

But hopefully there's not any cost whatsoever. In terms of choosing an advisor, you know, we talk often here on this program about the only industry designation in the financial services industry that's widely accepted related to biblically wise financial advice. It's the certified kingdom advisor designation. And it's for those men and women who already have a base of competency and experience as evidenced by at least 10 years in the business and another industry designation. But then they go on to get training on a biblical worldview application of finance. They have a pastor reference, a client reference, a statement of faith, a code of ethics and annual continuing education.

There's 1500 of them in the US and Canada. And you could find one right there in Chicago, many of them actually, when you go to our website, faithfi.com, click find a professional, you do a zip code search, I'd interview two or three and find the one that you feel like you have the best rapport with, you know, and choosing an advisor. I mean, in addition to just their experience, and, you know, them talking to you about how, you know, once they get to know you, they'd manage the money and their track record, I would want to make sure you have a good rapport, you feel like, you know, there's a compatibility there, just relationally, I'd want to make sure that they're comfortable with the communication rhythms you are asking for. I'd want to make sure that you fit into the core of their client base that you're not significantly below in terms of the assets or above their typical client.

And I'd want to know if they're going to hand you off to another advisor in the firm, and because that would be the person you'd want to interview. So those would be the kinds of things now be prepared, Grace, you know, you have to pay for those services. And, you know, it's not inexpensive in the sense that, you know, a typical advisor, you know, would might charge you a one and a half percent or one and a quarter percent. So, you know, on a half a million dollars, I have no idea how much you have, but on a half a million, that'd be, you know, $6,250 a year. So, you know, you're going to pay for this. But you've worked long and hard to build up this wealth through your working years. And in my view, it's worth it to have somebody waking up every day thinking about managing this money.

But what are your thoughts on that? I appreciate your help. That's very helpful.

Thank you so much. You're welcome, Grace. I'm so glad you're thinking of the qualified charitable distribution. Listen, take Grace's advice, folks here. If you're 70 and a half or older, you want to you need to take money out of your IRA because of an RMD. Use that qualified charitable distribution.

The ministry wins and you don't pay any tax. Let's go to Wilmington, North Carolina. Hi, David, go ahead. I enjoy your show very much, sir. It's real informative and it's educational. Thank God for you all.

Thank you very much. Tired of, you know, in the Old Testament, I know it mentioned tiring. And even today, you know, we are tired. But in the New Testament, Paul stresses that give is your heart purpose you to give. And I had talked to some people about time they say, Well, I do like policy, right purpose in my heart. Sometimes I give more, sometimes I get less. But when I make my mind up in my heart, that's how I do.

Exaggerate on that a little bit. I'm here to learn more, you know, give me your opinion, how you feel about that for Yeah, yeah, absolutely. It's a great question. You're absolutely right. In the sense that there is not the same very specific command that we see in the Old Testament. It's not there in the same way in the New Testament. There's not the quantitative requirements.

It's certainly less prominent. However, I think it would be a mistake to take that to mean that those of us under the law of Christ who have seen what Christ did on our behalf should be less generous than those who were under the law. I mean, keep in mind, we certainly wouldn't want to be in a position I don't think of giving away any less of our income than those who had so much less of an understanding of what God did to save them.

And so I think the big idea there is that the tithe becomes kind of a minimum standard, not the standard. So if we were to summarize everything we see in the New Testament, David, around giving, I think there's four big ideas that jump out at me as I look through the New Testament. Number one is giving freely. So it's not under compulsion where we feel obligated.

It's not about a legalism or checking a box to, quote, do our part. It's giving freely as an overflow or an expression of our gratitude to God. I think the second big idea is proportionate giving. Remember, it says in God's word, to whom much is given, much is required. I think the third idea that we see is that we're to give cheerfully. Remember, Paul says we don't want to give cheerfully. We don't want to give under compulsion.

The word for that is hilarious giving. Again, an overflow of our gratitude to God. And then I think the final big idea is sacrificial giving. You remember the most famous giver in the New Testament is the widow. We don't know her name, but we know she gave out of her poverty.

So I think you're right in the sense that there's not that same kind of standard that we're obligated to. But now we have an opportunity, having seen what Christ did on our behalf, to do some hilarious giving. And I think the tithe then becomes the training wheels of giving the beginning point, not the ending point. Thanks for your call, sir. Hey, if you haven't checked out our Web site recently, you can do that at FaithFi.com. While you're there, you can find a certified kingdom adviser and download the FaithFi app. It's how Julie and I manage our budget personally every day.

We'll be right back. If the heavy burden of debt is robbing you of freedom and peace of mind, Christian credit counselors can help. We're a nationwide nonprofit credit counseling organization that has helped over 300000 individuals in the last 27 years get out of credit card debt 80 percent faster while honoring that debt in full. To learn how Christian credit counselors can help you visit Christian credit counselors dot org.

That's Christian credit counselors dot org or call 800-557-1985. Great to have you with us today on faith and finance. If you find value in the program, maybe you listen regularly. Perhaps we've been able to be an encouragement to you or you've heard something you've been able to apply in your financial life. And you'd like to ensure that more people get to hear the biblical wisdom we provide through our articles and website and through this radio broadcast every day. A great way to do that is to become a FaithFi partner.

Those are folks across the country and even in other parts of the world that support us at thirty five dollars a month or more. We call them FaithFi partners. And not only do we send you a quarterly letter helping you to understand all that God is doing here at FaithFi, but you get all of our studies and devotions pre-release as an encouragement to you and your stewardship journey. And when we launch our new FaithFi publication early next year, which will be a quarterly piece beautifully designed with really thoughtful and practical articles that are theologically sound all in this area of faithful stewardship. That will be coming to your door as well. You even get a discount on FaithFi Pro if you use the app.

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That's faithfi.com slash give and become a FaithFi partner today. We would be grateful. Let's go to Orlando. Hi, Julie. Go ahead. Hey, Rob. How are you?

I have a question for you. I just turned 65. I've been forced into retirement just recently. And well, the good thing is the company is going to continue to give me a full biweekly check until the first quarter of 25. But thereafter, I won't get any more money from them. I currently have about maybe $10,000 in credit card debt and I have a $10,000 car loan. But I only have $50,000 in my IRA. So the question that I had for you was, do you think that it would be wise to pull from the 50,000 of my IRA to pay off the 10,000 for my car? Because once I stopped getting that biweekly check in the first quarter of 25, then I will be getting Social Security, which, of course, is going to be half of whatever I made. And I won't be able to afford the 400 whatever dollars every month to pay the car note. So that's the question really. Do you think it would be wise to pull the $10,000 from the 50,000 just to get the car out of the way and then continue to pay from my biweekly checks that I'm getting until the first quarter of March to pay off of my credit cards?

Yeah, makes sense. What do you spend in each month just on those minimum payments? Is it around 300 a month or so for the credit cards? About 300.

Now it's going down because I started trying to knock them out. I have three credit cards and I would say that the highest one is about $3,500 and then $1,500 on another and then about $900 on another. But then I have some other debt with credit that makes everything $10,000. But yeah, I would say about $300, yes, monthly. Okay, yeah, usually it's about 3% of the balance. And you said the card loan is about $450,000, is that right?

Yeah, it's $447,000, exactly. Okay. Is there another way to go about this?

I mean, let's just make sure we've thought through all of these options. If I understand correctly, you're going to be taking Social Security early, is that right? That's correct.

Yeah. Is there a chance that you could pursue another job just to be able to continue to pay off these debts without tapping the IRA and possibly delay that Social Security check until full retirement age? Well, I've already applied for Social Security, so I'm looking forward to kind of getting that. But I've taken another job on part-time also, so that is going to be, you know, a few extra hundred dollars that will be coming in. But that won't be enough to pay the car unless I really just start sweating from my brow again with the work and I'm not really trying to do that right now. I see. Yeah, that makes sense. I mean, the only downside here is that, you know, you're going to be penalized probably somewhere around 15% for that monthly check because you're taking it as much as two years early and you're going to lock in that reduction.

So I'd love for you to wait as long as you can on that. I mean, I see what you're saying in the sense that obviously the priority is the credit cards because those interest rates are probably much higher. But I realize that you're trying to solve for balancing the budget, which, you know, you're not able to do right now with that monthly car payment at $450.

And so if you could get rid of that, all of a sudden now the budget balances. So the option there would be to say, yeah, we take the $10,000 out of the IRA. You've got $40,000 left. You're beyond $59.5, so there's no penalty. That $10,000 would be added to your taxable income.

So you don't want to let that catch you by surprise. Now all of a sudden, you know, the budget is $450 less because the car's gone even though you probably need to put something in, you know, a maintenance fund. And then if we could put the credit cards in with our friends at christiancreditcounselors.org, that would be the way I'd go there because you'd still have the ability to prepay them if you can. But you'd have a much lower interest rate across the board as well. And so that would help you get those paid off much faster with much less paid in overall debt. It would probably be around the same monthly payment, that 3% of the balance. It's just that now with those lower interest rates, you've got a much larger percentage going to debt reduction to actual principal reduction.

So that could work. Again, christiancreditcounselors.org. And then, yeah, I think if you stay on this current track and there's not a way to make up the income that would allow you to delay Social Security and at least maintain the same level of income, then I would say paying off the card does make some sense because you've got to be able to balance the budget. Okay. And just the last note I wanted to mention was with that $40,000 that's left, I am definitely in a very conservative. It is exposed to $40,000 in the market, but it's definitely very, very extremely conservative.

Okay. Meaning I won't lose that much if I do lose. And I could contribute if I want to as well. Now, the thing I would do before adding anything else to that is try to build up an emergency fund that's outside of the IRA that's liquid and stable and accessible anytime you need it for the unexpected. So I would probably try to get to $1,500 as quick as you can, then focus on paying off the credit cards. But once you do, let's build that up to three to six months expenses and that'll have you in a good spot because at that point you'll be out of the credit card debt, you'll be out of the car debt, you'll have a budget that balances with an emergency fund, and at that point you're in pretty good shape. So I like this plan. Julie, I would reach out to Christiancreditcounselors.org though on the debt.

Thanks for your call. You know, as I think about our role in managing God's money, there are an unlimited number of decisions we make every day around our finances, and yet we can boil them down. We can simplify them into really just four big categories. The money we live on, the money we give, the money we owe, and the money that we grow. But the big idea over it all is that God owns it all, and our goal is to be faithful stewards, looking to God's word for counsel and wisdom to apply to our financial decision making. And when we do that, I believe it draws us closer to the heart of God.

It ultimately draws us into a more intimate relationship with Him when we handle His money according to His ways. I hope you found something today helpful and encouraging. I want to say a big thanks to my team today. On behalf of Taylor and Pat and Devin, I'm Rob West. I hope you'll come back and join us next time for another edition of Faith and Finance. May the Lord bless you. Faith and Finance is provided by Faith Buy and listeners like you.