2.5 Emergency Funds

Notes

An emergency fund is savings set aside for unexpected costs such as car repairs, medical bills or lost income.

• A common goal is 3 to 6 months of essential expenses. Many people start with a smaller first goal.
• Keep it somewhere safe and easy to reach, such as a savings account, not tied up in risky investments.
• It helps you avoid borrowing on credit cards when something goes wrong.
• Example: essential expenses $1,500 per month. A 3-month fund is $3 \times 1500 = 4500$, so $4,500.
• Saving $150 per month reaches $4,500 in $\displaystyle \frac{4500}{150} = 30$ months.