Why have an emergency fund?
As the name suggests, an emergency fund is there to help you in time of crisis. You can set your own rules on what counts as an emergency and when the money can be used – and especially what it shouldn’t be used for. Instant gratification, for example, is a no-no.
How much should you save? A good rule of thumb is to save enough to cover your household expenses for a set number of months. If you don’t have a high cost of living or many financial commitments, then savings to cover yourself for 3 to 4 months is a decent goal. Those with higher levels of debt like a home loan, and family commitments like school fees, might want to build a bigger cushion of 6 months’ costs to feel safe.