A savings account with funds set aside for use in the event of an unexpected expense, such as an illness, job loss or major home or auto repair.
Her daughter’s trip to the ER cost over $1,000, which she was, fortunately, able to cover with the family’s emergency fund.
One of the first steps towards financial independence is saving up an Emergency Fund. This shifts your reliance on credit cards to self-funding your emergencies. Initially, you should aim to set aside at least $1,000 for your Emergency Fund. Once all your consumer debts are paid off, you should work to build your Emergency Fund up to the equivalent of 3-6 months living expenses, depending on how secure you feel in your job.
Emergency Funds are for the truly unexpected, unanticipated and unplanned for expenses. Routine maintenance, vacations, and special events are not an appropriate use of your emergency fund.« Back to Glossary Index