Emergency fund

Also found in: Acronyms.

Emergency fund

A reserve of cash kept available to meet the costs of any unexpected financial emergencies.

Emergency Fund

An account where an individual deposits funds to use in an emergency. That is, if one finds himself laid off and unable to work due to a medical emergency (or, otherwise, in a financially difficult position) the emergency fund helps prevent destitution while one finds another job or recuperates. Many analysts recommend keeping three to six months of living expenses in an emergency fund, while others recommend setting aside a year's worth of expenses. See also: Rainy day fund, Equalization Reserve.

Emergency fund.

An emergency fund is designed to provide financial back-up for unexpected expenses or for a period when you aren't working and need income.

To create an emergency fund, you generally accumulate three to six months' worth of living expenses in a secure, liquid account so that the money is available if you need it.

It's a good idea to keep your emergency fund separate from other savings or investment accounts and replenish it if you withdraw. But you don't have to limit yourself to low-interest savings accounts, and might consider other liquid accounts, such as money market funds, that may pay higher interest.

If you're single or have sole responsibility for one or more dependents, you may want to consider an even bigger emergency fund, perhaps large enough to cover a year's worth of ordinary expenses.

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