GuidePlanning
Emergency fund: the first step before investing
Money that exists to be used on a bad day. That is why it follows different rules from the rest.
An emergency fund is money set aside for the unexpected: loss of income, an urgent repair, a health expense. It keeps a one-off problem from turning into debt.
How much to save
A common reference is the equivalent of a few months of essential expenses. People with unstable income, such as freelancers, or who support more people tend to need a bigger fund. The calculation starts from your fixed expenses, not your salary.
The three qualities of a good fund
- Liquidity: you can withdraw quickly, ideally the same day.
- Low risk: the value can't drop exactly when you need it.
- Separation: it stays away from your everyday account, so it isn't spent by accident.
