An emergency fund has two jobs: be available and keep you from selling long-term assets at the wrong time. Think in layers. Keep immediate bills in checking, several months of essential spending in an insured savings account, and any extended reserve in short-duration instruments whose access rules you understand. The right number depends on job stability, household income sources, insurance deductibles and health.
Put it into practice
- Write down the decision before acting.
- Define the risk in dollars and time.
- Review the result and improve the process.
