Emergency fund
An emergency fund is cash set aside for surprises, like a job loss, a car repair or a medical bill, so you don't have to borrow or sell investments at a bad time.
🌍 In the real world
A common approach is to build it in two stages: a small starter fund first (often $1,000 or one month of expenses), then a full fund of three to six months of essential expenses once high-interest debt is gone. People with less steady income often aim higher.
It belongs somewhere safe and easy to reach, such as an insured savings account, and not in stocks: the times you need it, like a recession, are often the times stock prices are down.
Example
Essential costs of $2,000 a month mean a full emergency fund of $6,000 to $12,000.
🎮 In Journey Shares
Savings at the bank are your emergency fund: insured up to $25,000 and paying interest. The money plan asks for $1,000 in savings first, then $5,000 once your margin loan is paid off. →
🧭 How to use it
Keep at least $1,000 in savings before taking big risks. When a trade goes wrong, savings keep you from having to sell everything at the bottom.
Keep savings under the insured $25,000 limit if you want all of it covered should the bank fail.
🎮 Learn Emergency fund the fun way
Try it in a live 3D city with play money: trade shares in real public figures, get margin-called, pay your taxes and rob a bot or two. Free, and nothing real is at stake.
❓ Common questions
Should my emergency fund be invested?
Usually not in stocks. It needs to be there, at full value, exactly when things go wrong, which is often when markets are down. Insured savings and money market accounts are common homes for it.
Three months or six?
Guides often suggest three months for people with steady income and a second earner in the household, and six or more for single earners, the self-employed or anyone in an unstable industry.
📜 Where it came from
🧩 Quick check
Which term is this?
“____ is how much loss or price swing an investor can accept, financially and emotionally, in pursuit of higher returns.”
🔗 Related terms
- Budget: A budget is a plan for your money: what comes in, what has to go out, and what's left to save or spend.
- Deposit insurance: Deposit insurance guarantees that savers get their money back, up to a limit, if their bank fails.
- Risk tolerance: Risk tolerance is how much loss or price swing an investor can accept, financially and emotionally, in pursuit of higher returns.
- Liquidity: Liquidity is how easily something can be bought or sold quickly without moving its price much.
Categories: Personal finance
Practise with $10,000 in play money
Free. No real money involved.