What is the purpose of an emergency fund?

The purpose of an emergency fund is to handle unplanned expenses or emergencies. This financial safety net is designed to be easily accessible in times of crisis, such as medical emergencies, sudden job loss, or urgent home repairs. The idea is to ensure that individuals have the necessary resources to navigate unexpected situations without needing to rely on credit or loans, which can lead to debt.

Having an emergency fund can provide peace of mind and financial stability, allowing individuals to feel secure in their ability to manage unforeseen circumstances. It is generally advisable for this fund to cover three to six months' worth of living expenses, which empowers individuals to handle various emergencies that may arise.