Key Takeaways

• An emergency fund is a dedicated cash reserve for true financial disruptions like job loss, medical bills, or urgent repairs.
• Most households should aim to save three to six months of essential living expenses, adjusted for income stability and risk.
• Emergency funds should be kept in liquid, insured accounts such as high-yield savings or money market deposit accounts.
• Using cash reserves instead of credit cards prevents interest costs and reduces financial stress during a crisis.
• Beyond covering expenses, an emergency fund provides psychological security and preserves long-term financial plans.