Emergency fund

[John]

What is an emergency fund and why is it important?

[John]

It is important to have a cash reserve "in case of emergencies" such as losing a job or an unexpected bill (medical?) or necessary expense (car or home repair?). This fund should not be used for anything other than a true "emergency" and should not factor in to your retirement savings or any other savings goals you have. It should be in an account you can access quickly (less than a week), not in the stock market (where the value can go up and down) and not in the form of a boat or motorcycle (which can take longer than a week to sell, with no guarantee of the value).

The general suggestion is to have 3-6 months' worth of expenses in your emergency fund. If your employment is relatively insecure, or you expect it would take you quite some time to find a new job should you lose your current one, you may want to consider a larger emergency fund.