Most financial advisors agree that people should have a special fund set aside to deal with unexpected emergencies, with the amount of the fund equal to at least 3 months' worth (preferably 6 months' worth) of basic living expenses. Basic living expenses consist of rent or mortgage, bills such as credit card and car payments, and food costs. The purpose of the fund is to be able to pay for unplanned expenses like repairing roof leaks, replacing plumbing pipes or electrical wiring, dealing with a car breakdown, or paying for medical bills that are not covered by medical insurance in the event you lose your job or become disabled.  Without an emergency fund, you might be forced to incur more credit card debt or sell an investment at a loss in order to deal with an unexpected crisis.

My Financial planner recommends creating an emergency fund by depositing some money every month (i.e., $25, $50, $100) into a checking or savings account. Checking accounts and saving accounts are FDIC-insured, so they are both safe and easily accessible. The idea is to think about this fund as if it were just another monthly bill that needs to be paid. Your success in building up your emergency fund depends on your ability to stick with your plan and resist the temptation to tap into it to buy something you want that happens to be on sale or for anything other than a real emergency.