Emergency Fund
Liquid reserves covering several months of essential expenses.
What is Emergency Fund?
Typically three to six months of necessary spending held in cash or a money market fund - more for variable income or a single-earner household. Its function is to keep an income shock from forcing a sale of long-term assets at the worst moment.
Emergency Fund: a worked example
$4,000/month of essentials suggests $12,000-$24,000 in reserve.
More terms in Planning, Insurance & Estate
Net Worth
Total assets minus total liabilities.
Term Life Insurance
Pure death benefit for a fixed period, no cash value.
Whole Life Insurance
Permanent coverage with a guaranteed cash value component.
Disability Insurance
Income replacement if illness or injury prevents you from working.
Long-Term Care Insurance
Covers extended custodial care that health insurance and Medicare do not.
Will vs. Revocable Trust
Directs assets through probate versus holding them outside probate.
Beneficiary Designation
Account-level instructions that override the will.
Probate
The court process validating a will and distributing an estate.