Emergency fund
Money set aside to cover several months of ordinary expenses and reachable the same day. Its job is not to earn but to stop you selling assets or taking on debt at the worst possible moment.
Not investment advice. This article is for informational purposes only. Past performance does not guarantee future results. Consult an independent financial advisor before making financial decisions.
Count from expenses, not income — this is where most people trip. Three months of a 400-a-month spend is 1,200, whether you earn 500 or 1,500. Counting from salary overshoots the target for some people and undershoots it for others.
The size depends on how stable the income is, not how large. Someone with a steady job and no dependants is fine on three months; a freelancer with uneven receipts, a sole earner, or a specialist in a narrow field where a search takes half a year needs six or more. There is no universal figure — there is the time in which you could realistically replace the income.
The fund is not supposed to earn, and that is what separates it from investing. Money put to work "so it does not sit idle" stops being a fund: in the downturn when you need it, assets are cheapest, and you lock in the loss at the worst moment. Losing value to inflation is the price of availability — an insurance premium, not a design flaw.
Signs it is a fund rather than just savings
- Reachable the same day, without penalty and without anyone else's approval.
- Kept apart from the current account — otherwise it dissolves into ordinary spending unnoticed.
- The amount is tied to expenses and recalculated when expenses change.
- It has no goals attached: a holiday or a new phone is savings, not an emergency fund.
- After you spend from it, the next priority is refilling it rather than resuming investments.
Commonly confused with
With investments and with a credit line. Investments earn and therefore fluctuate, so they cannot be counted on for the specific day you need the money. An approved credit limit looks like a substitute right up until you need it: banks cut limits precisely when a customer's employment changes. The fund differs by already being yours and already being here.
Common questions
Three if the income is steady, the profession is in demand and you are not the only earner. Six or more if income is uneven, you support a household alone, or your speciality takes a long time to place. The one benchmark: how many months it would realistically take you to restore the income.
Usually a small fund first — one month of expenses — then the expensive debt, then the rest of the fund. Without that first step any surprise expense goes back onto credit, and you end up repaying debt and creating it at the same time.
In the currency you spend, because that is the currency you will have to spend. Splitting across two makes sense if you have costs or obligations in the second one; switching the fund's currency to hedge the rate is an investment decision, not a protective one.
