Emergency Fund

An emergency fund is readily accessible cash reserved for genuine emergencies — a job loss, medical bill, or major repair. The common guideline is three to six months of essential expenses, held in a safe, liquid place like a high-yield savings account, more if your income is variable or your household depends on a single earner.

Its purpose is to keep a temporary setback from becoming a financial spiral: without it, emergencies get funded by high-interest debt or by selling investments at a bad time. For retirees, a related cash buffer can fund a year or two of spending so you're not forced to sell stocks during a downturn — a direct defense against sequence of returns risk.