For a long time I had the order backwards: I wanted to invest, it sounded exciting, and “savings for emergencies” struck me as something for fearful people. Until the emergency came —it always comes— and I had to unwind things at the worst moment and borrow at an interest rate I’m ashamed to remember.
The emergency fund is, simply, money set aside for when life does what it does: a car that breaks down, a month without income, a medical bill. It isn’t bad luck; it’s statistics.
How much
The usual benchmark is three to six months of your expenses —not your income: what you genuinely need to live on. If your work is unstable or you’re self-employed, aim for six. If it’s very stable, three may be enough. And don’t get stuck on the final figure: start with a small target, one month, and build from there. A single month of cushion already changes how you breathe.
Where
Somewhere boring and within reach. An account separate from your day-to-day one, liquid and risk-free. The fund isn’t there to grow, it’s there to be there. Put it in the market and, the day you need it, it might be worth less exactly when you need it most —and then it’s not a cushion: it’s another source of stress.
Why it comes before investing
Setting aside money I wasn’t going to touch was hard for me, because I’d never stopped to think about “me” a month from now. And that’s the whole idea of the cushion: it’s a silent gift to that future version of you, the one who’ll have a bad day someday and be grateful for it. Without it, the first scare forces you to sell investments at the wrong time or take on debt, and that’s where any plan breaks.
It isn’t glamorous. You won’t show it off. But the day I had it I noticed something odd: I stopped looking at my phone with dread every time the bank pinged. That calm, for me, paid more than any stock.
It’s the second stage of the path in the course Personal Finance from Scratch.
Educational content. Not financial advice.