An emergency fund is a dedicated savings set aside for unexpected expenses like medical bills or job loss. It provides a financial safety net, preventing the need for high-interest debt and ensuring stability during crises.
It’s advisable to start as early as possible. Initiating savings sooner allows you to gradually build a solid financial cushion, preparing you for unforeseen circumstances.
Your goal should be to have emergency funds equivalent to your 6 months of expense.
Ideally, the fund should be reserved for genuine emergencies. Creating a separate bucket for non-urgent goals ensures the fund remains intact for its intended purpose.
Regularly review your fund, particularly with changes in income or living expenses. Ensure that it aligns with your current financial situation and needs.
No, an emergency fund should be kept in liquid, low-risk accounts like savings accounts or liquid mutual funds. The priority is accessibility rather than maximizing returns.
While credit cards can provide short-term relief, relying solely on them can lead to high-interest debt. An emergency fund offers a more sustainable and financially responsible solution.