Emergency Fund
Savings buffer of 3-6 months of expenses for unexpected costs and financial security.
What You Need to Know
An emergency fund is your financial safety netโmoney set aside specifically for unexpected expenses like job loss, medical bills, or major repairs. It prevents you from going into debt when life happens.
How Much to Save:
- 3 months: Minimum for stable income, low expenses
- 6 months: Recommended for most people
- 9-12 months: For irregular income, single income families, or high-risk jobs
Where to Keep It:
- High-yield savings account (2-4% APY)
- Money market account
- Short-term CDs
- Not in stocks or risky investments
What Counts as an Emergency: โ Job loss, medical bills, car repairs, home repairs โ Vacation, new furniture, holiday gifts, "good deals"
Wedding Connection: Building an emergency fund before major expenses like weddings prevents you from financing everything on credit cards. It's your foundation for financial security.
Sources & References
This information is sourced from authoritative government and academic institutions:
- consumerfinance.gov
https://www.consumerfinance.gov/start-small-save-up/
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Emergency Fund Calculator
Calculate your ideal emergency fund size with our free tool. Find out how much you need to feel financially secure.
Financial Emergency Preparedness
Calculate layoff survival timeline, cost of quitting your job, and overall financial resilience score
Related Terms in Personal Finance
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A conservative car buying guideline: 20% down payment, 4-year maximum loan, monthly payment โค10% of gross income.
50/30/20 Rule
A budgeting guideline allocating 50% to needs, 30% to wants, and 20% to savings
Analysis Paralysis
Overthinking choices until you miss the window to act.
Automated Savings
Setting up automatic transfers so saving happens without willpower.
Behavioral Finance
The study of how emotions and mental shortcuts influence money decisions.
Budget
A spending plan that tracks income and expenses to ensure you're living within your means and working toward financial goals.