What is the primary purpose of an emergency fund?

The primary purpose of an emergency fund is to cover unanticipated expenses or loss of income. This financial safety net is designed to help individuals manage unexpected situations that could strain their finances, such as medical emergencies, car repairs, or job loss. Having an emergency fund allows people to maintain their financial stability and avoid going into debt when facing these surprises.

This fund is separate from other savings goals, as it is specifically earmarked for urgent and unforeseen circumstances rather than opportunities for investment, leisure activities, or discretionary spending. By having this cushion, individuals can navigate difficult financial times without derailing their long-term financial plans.