Why it matters
Life brings surprises: a car repair, a vet bill, a broken phone, reduced hours at work. Without a cushion, these usually go on a credit card or an overdraft, and a bad week becomes months of repayments.
An emergency fund is money set aside only for these moments. Its job is not to grow. Its job is to be there.
What counts as an emergency
Use a three-part test. An emergency is:
- Unexpected: you did not know it was coming.
- Necessary: life or work does not function without dealing with it.
- Urgent: it cannot wait until next month.
| Situation | Emergency? | Why |
|---|---|---|
| Boiler breaks in winter | Yes | Passes all three |
| Job loss | Yes | Income stops unexpectedly |
| Annual car insurance renewal | No | Expected; use a sinking fund |
| Sale on a new laptop | No | Not necessary or urgent |
| Laptop you work on breaks | Usually yes | Necessary for income |