When you put money away specifically to be utilized in tough financial circumstances, you create an emergency fund. This covers things like losing your job, suffering from a serious sickness, or needing to make expensive repairs to your house or car, not to mention the huge economic crisis and lockdown that occurred in 2020.
Your financial condition, spending, lifestyle, and debts all play a role in determining the ideal emergency fund amount. Many financial consultants advise clients to save aside money for three to six months' worth of spending. Doing so can help you weather a small medical expense or a brief period of unemployment.
Make sure not to utilize this resource for anything other than a true emergency because it may be tempting to use it for accidental or frivolous purposes.
Before investing in risky investment vehicles like crytos or stocks, you might wish to start saving for emergencies. The latter have a higher potential for long-term growth than cash and cash equivalents, but their value is susceptible to rapid drops in a recession, as the lockdown of 2020 and economic crisis amply demonstrated. You are shielded from that danger by an emergency fund.
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