What is an emergency fund and how does it fit into my short-term savings plan?

An emergency fund is a separate savings account that is specifically designated to cover unexpected expenses, such as medical bills, car repairs, or job loss. It is typically recommended to have 3 to 6 months' worth of living expenses saved up in your emergency fund.

Your emergency fund should be a part of your shortterm savings plan, as it provides a safety net for unforeseen financial setbacks. It is important to prioritize building your emergency fund before investing in other shortterm savings options, such as vacation or home down payment funds. By having an emergency fund in place, you can avoid dipping into other savings accounts or taking on debt to cover unexpected expenses.