Why you need an emergency fund, and how to build one

An emergency fund is money set aside for sudden costs such as a job loss, a medical bill or an urgent repair. It keeps you from borrowing at high interest or selling investments at a bad time.

A common rule of thumb is to keep three to six months of essential expenses. People with irregular income or dependants may want more. Start small: even a first target of one month's expenses is useful.

Keep the money in a separate account that is easy to reach, such as a savings account or a liquid fund, and not in shares or anything with a lock-in. Set up an automatic transfer on salary day so saving does not depend on willpower.

If you use the fund, rebuild it before you increase other investments. Review the target once a year as your expenses change.