Emergency fund: how much you need and where to keep it
A car repair, a month without work, a dental bill you didn't see coming. Surprises aren't rare; a year without any would be. An emergency fund is money set aside so those hits don't turn into debt.
How much you need
The usual guideline is 3 to 6 months of essential expenses: housing, utilities, food, transport, insurance and debt repayments. Leave out entertainment and anything you could stop buying in a tough month.
- If your income is stable and your household has two earners, 3 months may be enough.
- If you're self-employed, your income varies, or you support the household alone, aim for 6 months or more.
Example: if your essentials add up to €1,400 a month, your target is between €4,200 and €8,400.
Where to keep it
This money needs to meet two conditions: available within a few days, and not able to drop in value suddenly. An easy-access savings account usually fits. The stock market doesn't: if the emergency arrives during a downturn, you'd be forced to sell at a loss.
It helps to keep it separate from your everyday account. If it sits next to your normal balance, it's easy to spend it on things that aren't emergencies.
Building it without stress
- Start with a first milestone. One month of expenses already covers most small shocks.
- Automate a transfer on payday, even a small one.
- Direct part of any extra income to it: bonuses, tax refunds or money from selling things you no longer use.
- Refill what you use. Using it isn't failure; that's what it's for. Then top it back up.
What if I have debt?
A small one-month cushion is useful even while you pay off debt, because it stops every surprise from forcing you to borrow more. With that in place, focusing on the most expensive debt before completing the full fund is a reasonable approach.
Cushion first, then invest
Once the fund is complete, market drops stop being an urgent problem, because you'll never have to sell to pay a bill. In MonVault you can set your emergency fund as a savings goal and see how much is left, while checking what you really spend on essentials so your target stays realistic.
