What is Emergency Fund?
An Emergency Fund is a financial reserve of money that is set aside for unexpected, emergency expenses. It is typically used to cover unexpected but necessary expenses, such as medical emergencies and other large expenses or purchases.
An Emergency Fund should be held in a liquid account – such as a savings or checking account – so you can quickly access the funds when an emergency arises. It is recommended that you keep enough money in your Emergency Fund to cover three to six months of living expenses.
Why emergency fund?
An Emergency Fund is important because having a stash of money set aside for unexpected expenses can help reduce financial stress and prepare individuals for unforeseen events. Without an emergency fund, an expense such as a medical bill or job layoff could lead to extreme financial hardship. Having an emergency fund can give individuals peace of mind and help prevent them from taking on debt in crisis situations.
How much emergency fund one should have?
It is generally recommended that you have an emergency fund that can cover at least three to six months of your essential expenses. This means that your emergency fund should be able to cover expenses such as your mortgage or rent, groceries, utilities, and any other essential bills that you need to pay each month. Having this amount of money set aside in an easily accessible account can provide you with peace of mind and financial security in case of an unexpected emergency, such as a job loss or a major unexpected expense.