The Emergency Fund: Why, How Much, How to Build One and Where to Keep the Money

Insurance protects us from a wide range of risks that accompany our day-to-day lives. Yet there’s none available specifically to protect people from one of the biggest risks there is: unforeseen financial emergencies. So when someone unexpectedly loses their job and their income, or is ambushed by a major unanticipated expense such as a costly home or automotive repair, what then?

Enter the emergency fund.

Financial emergencies can strike indiscriminately and inflict major damage, particularly on people who are unprepared. Anyone is susceptible, regardless of age, financial circumstances, job standing or family situation. Which is why, according to personal finance experts, if you have something to lose financially, you need an emergency fund as insurance.

“What an emergency fund does is insure a person or a family against the risk of losing their income for a period of time and protect them from a big expense that comes up unexpectedly,” explains Russ Weiss, a Certified Financial Planner™ at Marshall Financial Group in Doylestown, Pa.

A checking account, a retirement plan, an investment account — they each have a distinct purpose. The same holds true for the emergency fund. It’s a cash reserve set aside specifically to provide a cash infusion when it’s desperately needed, to keep a household running and cover expenses in a pinch. Here are some parameters for establishing and maintaining one:
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