Emergency Fund

An Emergency Fund is a Savings Account set aside specifically for unexpected expenses or financial emergencies. This fund acts as a financial safety net, helping individuals avoid debt when unforeseen costs arise, such as medical bills, car repairs, or job loss.

Typically, financial experts recommend having three to six months’ worth of living expenses saved in an emergency fund. This ensures that an individual can cover essential expenses while navigating through financial challenges.

For example, if a person has monthly expenses totaling $2,000, their emergency fund should ideally range from $6,000 to $12,000. In a case where a sudden medical emergency costs $3,000, the emergency fund can be used to cover the expense without resorting to high-interest Credit cards or loans.

Another case might involve a car breaking down, requiring $1,500 in repairs. Having an emergency fund allows the individual to handle the situation without disrupting their regular Budget or financial stability.