Emergency funds: your financial safety net

An emergency fund is easily accessible cash set aside for unexpected costs — a job loss, medical bill, or urgent repair.

Why it comes first

Without a buffer, a surprise expense forces you to borrow at high interest or sell investments at a bad time. The emergency fund lets the rest of your plan keep working undisturbed.

How much to hold

A common guideline is three to six months of essential expenses. Consider more if:

• Your income is irregular or you're self-employed.
• You're the sole earner or have dependants. Consider slightly less if you have very stable income and other safety nets.

Where to keep it

Somewhere safe and liquid — an instant-access savings account or money-market fund. It shouldn't be invested in shares, where it could fall just when you need it. See liquidity.

Building it

Start small and automate a regular transfer. Even one month's expenses dramatically reduces stress and reliance on credit.

Key takeaway

The emergency fund isn't an investment — it's insurance against having to make bad decisions under pressure. Build it before taking on investment risk.