Emergency Fund

Definition

An emergency fund is money set aside in a readily accessible account to cover unexpected expenses or financial emergencies such as job loss, medical bills, car repairs, or home maintenance. Financial experts generally recommend saving 3-6 months of essential living expenses, though some suggest up to 12 months for self-employed individuals or those with variable income. The fund should be kept in a high-yield savings account or money market account — liquid enough for quick access but earning some interest. Building an emergency fund is considered the first step in any financial plan, even before investing. Without one, unexpected expenses can lead to high-interest debt or forced liquidation of investments at unfavorable times.