Savings set aside specifically for unexpected expenses or financial emergencies.
An emergency fund is a cash reserve that's specifically set aside for unplanned expenses or financial emergencies such as medical bills, home repairs, car troubles, or unexpected job loss. Financial experts typically recommend having three to six months' worth of living expenses saved in an emergency fund. The money should be easily accessible, usually kept in a high-yield savings account, so you can access it quickly without penalties when needed.
If your monthly expenses are $4,000, you should aim to save between $12,000 and $24,000 in an emergency fund. This could cover your living expenses if you lose your job or face a major unexpected expense.