An emergency fund is money that you have set aside to specifically cover any unexpected expenses that may come up. An emergency fund may cover unexpected car repairs, medical bills or other emergency situations. You may also use an emergency fund to help pay your bills when you are unemployed.
Initially you may want to start with a small emergency fund of one to two thousands dollars. Eventually you should build your emergency fund to cover three to six months of expenses. If you work in a field where lay-offs are common you should save more rather than less.
Emergency funds should be held in an account where you can access them fairly quickly. This would include a good money market account or a high interest savings account. You will not want to invest your emergency funds or put them into CDs.
