You know how your parents keep a flashlight in the house in case the power goes out? An emergency fund is like that, but for money. It’s cash you set aside for surprises — things you didn’t plan for but need to pay for right away.
What Counts as an Emergency?
An emergency is something unexpected and necessary:
- Your car breaks down and you need it to get to work
- You get sick and have a medical bill
- You lose your job and need to pay rent while you look for a new one
- Your fridge stops working and you need to replace it
An emergency is NOT:
- A sale on something you want
- A vacation you forgot to save for
- A new video game that just came out
How Much Should You Save?
Most experts say you should have 3 to 6 months of expenses saved up. That sounds like a lot, but you don’t have to do it all at once.
Start small:
- $500 — This covers most small emergencies like a car repair or unexpected bill
- $1,000 — A solid cushion for medium surprises
- One month of expenses — Now you’re building real security
- 3-6 months — The gold standard. This protects you even if you lose your job
Where Should You Keep It?
Keep your emergency fund in a savings account — somewhere safe and easy to access, but separate from your everyday spending money. You don’t want to accidentally spend it on pizza.
Don’t invest your emergency fund in stocks. The whole point is that it’s there when you need it, and stocks can lose value at the worst possible time.
The Bottom Line
An emergency fund is money you save for life’s surprises. Start with whatever you can, even $20 a week, and build from there. Future you will be very grateful.