If you’ve spent much time reading personal finance literature and websites, or watched a couple of episodes of any of the modern day television gurus on the subject, you’ve probably run into the term ‘emergency fund’. If you’ve had an questions on what an emergency fund is, why you need one, how to set one up, or anything else, this series is for you.
The term ‘emergency fund’ itself is a relatively new one. Not too long ago, if someone had any money left over at the end of the month this went into an account (or cookie jar) simply called ‘savings’ or maybe ‘rainy day fund’.
The idea of the emergency fund is to portion off some of your savings specifically for some unforeseen future emergency. This money would be kept fully separate from savings you might use for other goals like going on a trip, buying a house, or retirement. Ideally it would be kept in a separate account or even a different bank just to further remove the temptation to use it for anything other than emergencies.