What is an emergency fund?

Emergency fund: Savings for unexpected costs, often three to six months of fixed expenses. It is separate from what you invest, so you never have to sell at a bad moment.

An emergency fund is money set aside for setbacks, such as a broken washing machine, a car repair or a drop in income. It usually sits in a savings account so you can get to it quickly.

A common guideline is three to six months of fixed expenses. How much you need depends on your situation, such as your job, your home and whether you have children.

With a buffer you do not have to sell investments when something happens. That is especially helpful when prices happen to be low.

Example
Your fixed expenses are 1,800 euros a month. Three months is 5,400 euros, six months is 10,800 euros. A buffer between those two amounts covers a sizeable setback in this example.

Watch out
Money in a savings account slowly loses buying power through inflation. A buffer is meant for security, not for return.

Read more in the guide Buffer first, market second: how to build an emergency fund.

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