Why you need an emergency fund
An emergency fund isn't an investment. It's insurance against the rest of your financial life falling apart.
People resist emergency funds because they feel unproductive. Cash sitting in a savings account earning 4% feels worse than cash invested in an index fund earning 10%. So they skip the emergency fund and invest more. Then a water heater fails, or a job ends, or a car dies, and they pull from the investments at the worst possible time — or worse, reach for a credit card.
What it actually does
An emergency fund isn't trying to grow wealth. It's trying to keep you from having to sell long-term assets or take on high-interest debt when something unexpected hits. Its job is to be boring. The return on an emergency fund isn't 4% — it's the 24% credit card interest you didn't have to pay, or the 20% you didn't lose selling investments in a downturn.
Signs you don't have one yet
- A $500 surprise expense makes you nervous.
- You've used a credit card to bridge a paycheck.
- You think of 'emergency fund' and 'investment account' as the same thing.
- You know your 401k balance but not your checking balance.
Put this into practice
Worth tracks your accounts, budgets, and goals — so the concepts in this article aren't just theory.
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