Key Takeaways

A typical emergency fund target covers three to six months of expenses 

Keep an emergency fund separate from long-term investments

Include emergency savings as part of your budgeting process

Save for emergencies.

To keep from dipping into long-term investments or borrowing at unattractive rates when you need cash in a hurry, create an emergency savings fund that can cover at least three months of essential living expenses such as rent or mortgage, utilities, food, and transportation.

An emergency fund isn’t just a repository of cash you can dip into when the tires wear out or the dishwasher breaks down. Those emergency dollars may actually be critical to your overall investing strategy. The general rule for emergency savings is three to six months’ worth of expenses.

It depends on personal lifestyle, career, and income. If income is a little more stable, maybe they can stick to something shorter. But if the situation is unstable or if they’re in a profession where maybe there’s risk of attrition, then they may want to have a longer type of fund set up.

the availability of emergency cash is the key short-term priority, because without it, longer-term goals could get dinged.

Financial experts advise to put financial goals into short-term, intermediate-term, and long-term buckets. The short-term budget would include emergency savings. Intermediate goals may include buying a house and paying for college. But, the Long-term goal is retirement. But intermediate and longer-term buckets can spring a leak if emergencies aren’t covered by short-term funds.

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