Emergency Fund
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Definition: An emergency fund is a savings account reserved for unexpected expenses, such as medical bills, car repairs, or job loss. It provides a financial safety net to avoid relying on debt during emergencies.
Example: If your car breaks down and the repair costs $800, you can use money from your emergency fund to cover the expense without disrupting your monthly budget.
Emergency Funds vs. Sinking Funds:
An emergency fund is meant for unplanned, urgent expenses like medical bills or job loss, providing a financial safety net. In contrast, a sinking fund is for planned, future expenses, such as vacations or car maintenance, allowing you to save gradually for specific goals.