What is an Emergency Fund?

An emergency fund is a financial cushion that protects you from unexpected events. It’s the money you can access quickly when something unexpected happens.

How much to save?

The recommendation is to have between 3 to 6 months of your monthly expenses. If you spend $600/month, your ideal reserve is between $1,800 and $3,600.

Where to keep it?

The reserve needs to have daily liquidity (immediate access):

Never leave it in stocks, real estate funds, or investments with a redemption deadline.

How to build it?

  1. Define the target value (3-6 months of expenses)
  2. Set aside a fixed amount every month (10-20% of income)
  3. Automate the transfer
  4. Don’t touch it until you reach the target value