How to Start an Emergency Fund

The two main reasons for prioritizing emergency savings before paying off debt are to avoid going into further debt during an emergency and to have the peace of mind knowing that there is money in the bank. It is important to have an emergency fund before addressing any existing debt. A recommended starter emergency fund is three months of living expenses. This amount can be determined by multiplying the monthly expenses by three. The emergency fund should be kept in a high-yield savings account for easy accessibility. It is not advisable to invest the emergency fund in the stock market. An emergency fund is specifically for genuine emergencies such as illness, job loss, or car breakdown. Once the emergency fund is established, it serves as a concrete financial goal that can be checked off. Therefore, having an emergency fund should be the top financial priority.