Mike Tyson once said, “Everyone has a plan until they get punched in the face.” That applies to your finances, too. Before you start investing, make sure you’re prepared for life’s unexpected hits. It can happen to anyone: a sudden job loss, a medical issue, a major car repair, or a broken heating system

Let’s explore everything you need to know about it: how big an emergency fund should be, how to quickly build it, and where to keep your financial cushion to prevent inflation from eating into it.

An emergency fund is money you set aside to cover several months of expenses if your income stops. It’s one of the most important financial foundations you can build.

One of Murphy's most popular laws says: "If something can go wrong, it will." And that's the main idea behind the emergency fund. It's not about pessimism at all. I'm an optimist, but when I see clouds in the sky, even though I'm hoping for sunshine, I still take an umbrella with me just in case. It’s not about being pessimistic. It’s about being prepared. You can stay optimistic and still plan for rainy days.

If you don't have any savings, you’re exposed to financial shocks. So what changes when you stop living paycheck to paycheck and build a real financial buffer? Is your boss making you miserable? Want to move? Saving money makes deciding whether to change jobs or places to live much easier. You don't feel tied to the life you currently lead because you have an emergency fund to make changes.

With this fund, unexpected expenses stop feeling like disasters. If your car breaks down or your refrigerator dies, you pay for it from your savings and move on. And then you simply rebuild your emergency fund.

A solid emergency fund gives you peace of mind during market turmoil. It acts as a buffer between you and life’s surprises.

Your emergency fund depends on two things: how much you spend each month and how many months you want covered. A common rule of thumb is to save at least six months of expenses. If you have a family, base it on your total household spending.

Let’s look at a real-world example. Let’s say the family has two working parents and two kids. They live in a large U.S. city and own a home with a mortgage. Both adults have significant professional experience and work in fields where employment opportunities are relatively stable.

Given this context, an emergency fund covering six months of expenses should be sufficient. In situations involving higher risk, such as a single-income household or unstable employment, a nine- or even twelve-month cushion might be more appropriate. However, for this example, six months provides a reasonable level of security.

To estimate their monthly expenses, we can refer to general spending data published by the U.S. Bureau of Labor Statistics, which shows that average household spending in the United States is roughly seventy-five to eighty thousand dollars per year. That translates to approximately six to seven thousand dollars per month. Because this family lives in a large city and carries a mortgage, we can assume their monthly expenses are slightly above average, at around $7,300 per month.

Multiplying $7,300 by six months results in a target emergency fund of $43,800. That’s their target if they want to be protected against job loss, illness, or other surprises.

At first, $43,800 may seem like a very large amount, especially if the family is starting from zero. The key is to approach this goal gradually. Instead of focusing on the full six-month amount immediately, they can first build a smaller buffer, such as $5,000, then increase it to one month of expenses, and continue expanding it step by step until they reach the full target. Consistent automatic savings, directing bonuses or tax refunds toward the fund, and temporarily increasing income can significantly speed up the process.

And don’t forget to revisit your emergency fund every few years. As your income and expenses change, your target should change too.