What is an emergency fund?
It is a rainy-day fund, an umbrella. An emergency fund is for those unexpected events that are not regularly planned for happening in life – you lose your job, there’s an unexpected pregnancy, the car’s transmission goes out, or, or, or. This is NOT an investment or Bahamas fund! Before attacking Baby Step 2 (the Debt Snowball), save $1,000 as a baby emergency fund. A fully funded emergency fund is 3-6 months of your personal expenses set aside in a savings or money market account; build this up in Baby Step 3.
The first thing you should do – after meeting basic needs, and while reducing spending – is to start an emergency fund. An emergency fund is an easily accessible stash of money for use only in case of emergency. It is not to be used to buy a new car. It is not to be used to buy a new television or that purse you have been just dying to have. It is for use only in case of emergency.
