We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

In Finance, what is an Emergency Fund?

By Bethany Keene
Updated: Jan 22, 2024
Views: 4,468
Share

An emergency fund is a cash reserve held in case an emergency leading to a loss of income should arise. It is generally recommended that individuals or families save from three to eight months' worth of living expenses in a savings account in order to stay afloat after the loss of a job or an unexpected major expense. This savings account is referred to as an emergency fund, and should not be touched unless absolutely necessary.

To start an emergency fund to guard against future money problems, begin by opening a separate savings account at a bank. Determine the amount of money that can be regularly deposited into the account, either bi-weekly or monthly. It may be necessary to closely examine one's expenses to determine where cutbacks can be made. It may be beneficial, then, to set up an automatic withdrawal from a checking account into the savings account every time a paycheck is deposited. That will make the money absence less noticeable, particularly if it is a relatively small percentage that will add up over time.

It is also necessary to determine the amount of money that is needed in order to survive for a certain amount of time. Again, take careful account of monthly expenses, selecting ones like groceries, mortgage, gas, medications, and food that are absolutely necessary, and add those up. The emergency fund should be able to cover at least three months of these necessities.

Keep in mind that an emergency fund can take years to build. It is important to fund a retirement account at the same time, particularly if a company offers some sort of contribution-matching program. In addition, those with high amounts of credit card debt might first want to focus on paying that off. This is because it does not make much financial sense to have thousands of dollars sitting in an emergency fund only earning three percent interest, while a credit card company is charging 18 percent interest or more on a high balance.

There are many benefits to having an emergency fund. If a job is lost, a medical emergency happens, or a home needs expensive repairs, the emergency fund can be used without needing to take out a loan or running up high balances on a credit card. Careful money management and a regular assessment of expenses can go a long way towards funding one's future. An emergency fund is just one part of successful finances, but many people believe it to be the most important part to guard against disaster.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Editors' Picks

Discussion Comments
Share
https://www.wise-geek.com/in-finance-what-is-an-emergency-fund.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.