Which of the following describes an expense that should be covered by an emergency savings?

• A. Planned vacation expenses
• B. Regular grocery shopping
• C. Unexpected medical bills due to an accident
• D. Monthly subscription to a streaming service

Answer: (C)

Verified step by step guidance

1. Understand the concept of emergency savings: Emergency savings are funds set aside to cover unexpected and urgent expenses that arise due to unforeseen circumstances, such as medical emergencies, job loss, or urgent home repairs.
2. Analyze the options provided: Planned vacation expenses, regular grocery shopping, and monthly subscriptions are predictable and recurring expenses, which should be budgeted for separately and not considered emergencies.
3. Identify the correct type of expense: Unexpected medical bills due to an accident qualify as an emergency expense because they are unforeseen and require immediate financial attention.
4. Differentiate between emergency and non-emergency expenses: Emergency expenses are unplanned and urgent, while non-emergency expenses are predictable and can be planned for in a regular budget.
5. Conclude that emergency savings should be reserved for unexpected and urgent expenses, such as medical bills due to an accident, rather than routine or planned expenditures.