Emergency Fund
Definition
Money set aside in a savings account for unexpected expenses — car repairs, medical bills, job loss, etc. Typically 3-6 months of living expenses. It's not an investment; it's insurance against life's surprises. Keep it liquid and accessible, not in the stock market.
Why It Matters
An emergency fund prevents you from going into debt when something unexpected happens. Without one, a $2,000 car repair forces you to use a credit card at 18% APR. With one, you handle it calmly.
Example
If your monthly expenses are $3,000, an emergency fund is $9,000-18,000. Keep it in a high-yield savings account earning 4%+ APY. After a year, you've earned ~$360 interest while keeping it safe.