Glossary
Emergency fund
An emergency fund is money set aside to cover essential expenses if income stops. You hold it in an account you can draw on the same day, sized in months of expenses, commonly three to six.
Size it on months of *essential* expenses (rent, food, utilities, insurance, minimum debt payments) rather than months of total spending, because discretionary spending is the first thing to fall in an emergency.
Keep it liquid rather than invested, and keep it out of any savings goal you might spend it against.
Related terms
- Sinking fundA sinking fund is money saved gradually for a known future expense, such as an annual insurance premium or a replacement laptop, so the payment does not arrive as a shock.Read
- Fixed expenseA fixed expense is a recurring cost of roughly the same amount each period: rent, a loan instalment, insurance, a subscription. It is predictable, which makes it easy to plan and easy to forget.Read
- Net worthNet worth is everything you own minus everything you owe. In a personal finance app it is the sum of every account balance, converted to one currency, with debts counted as negative balances.Read
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