Emergency Fund

Definition

An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events, like a job loss or medical emergency, can be stressful and costly, so having a separate, easily accessible savings account is crucial.

Example

You lose your job unexpectedly. Your emergency fund, ideally containing 3-6 months of living expenses, allows you to pay your bills while you search for a new job without going into debt.