JagInsights › Glossary › Emergency fund
What is an emergency fund?
An emergency fund is cash set aside for a job loss or a bill you cannot time. How to size it from your real expenses.
An emergency fund is cash you do not spend on plans. It covers a lost paycheck or a bill that cannot wait, such as a car repair that keeps you at work.
Worked example
Must-pay bills are $2,100 a month. One month of those bills is $2,100. Three months is $6,300. Saving $300 a month reaches the first month in seven months. That first month is the useful target. Three to six months is the later one, after high-interest debt is moving down.
Why it matters
A budget with no cash reserve breaks on the first irregular bill, and the person then calls the budget a failure.
Questions people ask
Should the emergency fund be invested?
No. The point is that you can use it this week. A savings account you can transfer from is enough.
Do I build this before paying extra on a credit card?
Keep a small starter fund, often one month of must-pay bills, then attack a high-interest card. A fund of zero means the next surprise goes back on the card.
Is three months a rule?
It is a common later target. The first target is one month of the bills that do not stop if you do.
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