An emergency fund is money set aside for unexpected costs such as a car repair, a medical bill or a gap between jobs. It keeps a surprise from turning into debt.
A common rule of thumb
Many guides suggest saving three to six months of essential expenses. People with irregular income or dependants often aim for the higher end. Start smaller: even one month of costs changes how you handle a shock.
Where to keep it
- Somewhere easy to reach but separate from your daily account
- In a safe, accessible account rather than an investment that can fall in value
- Labelled clearly, so you are less tempted to spend it
Build it in stages
Set a first target, then increase it. Direct a fixed amount each payday and add windfalls such as tax refunds. When you use the fund, rebuild it before restarting other goals.