Emergency Fund

What is it?

An emergency fund is an accumulated cash reserve set aside for urgent unexpected expenses.

When is it used?

This fund is set aside, usually in a highly liquid saving or money market account (money you can access immediately without penalty), and is only to be used for critical and unexpected needs. It is designed to protect you and your family against financial hardship in the event there is a sudden loss of income or other financial crisis. This is designed to keep you and your loved ones from experiencing a sustained financial hardship in case of an injury, loss of employment, or other financial setback.

Our recommendation

We suggest having 3-6 months of your expenses held in reserve in your emergency fund. If you do not already have an emergency fund we suggest adding this line item to your budget and saving toward this goal until you have at least 3 months living expenses. Many people feel comfortable with an “emergency” credit card or line of credit in place of an actual emergency fund. We feel strongly that if you have credit that is earmarked for an emergency situation, it is in addition to having actual savings, not in place of.

Rational

If you do not have an emergency fund, a short term financial set back could turn into a catastrophic loss and put you and your loved ones in a precarious financial position. Having emergency cash on hand to get you through a difficult time can act as a safety net, preventing an unfortunate situation into becoming much worse.

Where to find it

If you do not have an emergency fund already, regular savings is required to build one. Adding this to your monthly budget should be among your first priorities.