what is an emergency fund 
the term emergency fund refers to money stashed away that people can use in times of financial distress the purpose of an emergency fund is to improve financial security by creating a safety net that can be used to meet unanticipated expenses such as an illness or major home repairs 1assets in an emergency fund tend to be cash or other highly liquid assets this reduces the need to either draw from high interest debt options such as credit cards or unsecured loans or undermine your future security by tapping into retirement funds understanding emergency fundsyou establish an emergency fund when you put away money that is intended to be used during times of financial hardship this includes the loss of your job a debilitating illness or a major repair to your home or car not to mention the kind of major economic crisis and lockdown that happened in 2020 the best size for an emergency fund depends on a number of factors including your financial situation expenses lifestyle and debts many financial advisors recommend saving enough to cover anywhere from three to six months worth of expenses which can help you weather a modest healthcare bill or a short bout of unemployment 2however some experts argue for an even heftier cushion celebrity finance guru suze orman for example suggests an emergency fund that can handle up to eight months worth of outlays 3 and she made that contention well before the 2020 crisis a stark reminder of how sudden and deep an economic slump can be 4individual circumstances may dictate the specific savings level with which you re comfortable for example a single adult without children may be content covering three months of expenses while the sole breadwinner for an entire family may want to have enough to cover half a year or more 5 research shows that many americans are well short of the recommended range in fact a 2020 survey by the federal reserve found that more than one fourth of americans lacked the ability to cover a 400 expense with cash or its equivalents among unemployed workers that figure rose to 45 4if you re living paycheck to paycheck you may want to start with more modest goals such as putting 2 of your net income into a rainy day fund and slowly increasing your contribution rate every few months even a modest safety net can help buy you a little time should you face an unforeseen financial crisis it may be tempting to use your fund for incidental or frivolous purposes so make sure that you don t deplete this resource for any purpose other than an actual emergency 