An emergency fund is money set aside for genuine surprises — a job loss, urgent repair or medical bill. Without one, unexpected costs often end up on high-interest credit.
How much should you save?
A common guideline is three to six months of essential expenses. People with irregular income, dependants or a single household income may prefer to aim higher.
- Add up your essential monthly costs: housing, food, utilities, insurance, transport and minimum debt payments.
- Multiply by the number of months you want covered.
- Start with a smaller first milestone, such as one month, and build from there.
Where to keep it
Your emergency fund should be safe, easy to access and ideally earning some interest. A separate savings account with a reputable, regulated bank is a common choice. Keeping it separate from your everyday account reduces the temptation to spend it.
Not for investing
Avoid keeping your emergency fund in assets that can fall sharply in value, such as individual shares or cryptocurrency.
What counts as an emergency?
Ask three questions: Is it unexpected? Is it necessary? Is it urgent? If the answer to all three is yes, it is what the fund is for. Afterwards, rebuild it as your first savings priority.
