What is an emergency fund?

An emergency fund is a savings account set aside specifically for unexpected expenses, such as medical bills, car repairs, or job loss. Having this fund is crucial for financial stability, as it provides a financial safety net that can help you avoid going into debt when an unforeseen circumstance arises. By keeping this money separate from your regular spending or investment accounts, you ensure that it remains readily available when you need it, allowing you to handle emergencies without disrupting your financial plan or relying on credit. This aspect reflects the fundamental principle of personal finance: having a buffer against life's uncertainties.