What is an emergency fund?

Saving money is an absolute must when thinking about future success. However, it is important to allocate your savings into different funds: an emergency fund, short-term savings, and long-term savings. Allocating money into your emergency fund should be the first fund you deposit money into. It is essential to save up at least 6 months of your living expenses in order for you to be secure in case you get laid off from work or your revenue stream gets cut off and you are left solely with your savings. For instance, if you make 2k dollars a month, you should be putting at least 12k into your emergency fund.

 If you are in a highly competitive industry, plan to save slightly more in case of long-term unemployment. In order to fully understand how much you should save up and whether to save beyond the 6 months' rent rule, it is important to research how your industry performed during the recession of 2008. You can use this information to determine whether your job is vulnerable to recessions, thus propelling you to save more or less to prepare for a future recession. 

This fund is so important because it can reduce any worry in an emergency situation. For instance, what if the car you commute 30 minutes to work in breaks down and needs an expensive repair? If you have no money saved for this emergency situation, how will you get to work? How will you make money to pay for this? 

The money in your fund should be liquid, meaning that it should be money in your checking or savings accounts, or be cash. This makes it easier to acquire this money in physical form to pay off whatever you need in an emergency situation.