In more detail
The target is based on essential spending, not income: housing, utilities, food, insurance, transport and minimum debt payments. Three months may be enough for a stable two-income household; six months or more suits a single income, variable pay or self-employment. Keep it in an accessible, insured savings account, not in investments that can fall just when you need the money. Many people start with a small first goal, such as one month, before paying down debt faster.
Why it matters
Without a buffer, a car repair or a gap between jobs goes on a credit card at a high APR, which can undo months of debt repayment. The fund is insurance, so its low return is not a reason to invest it.
Example
With $3,000 of essential monthly spending:
- 3-month target: $9,000
- 6-month target: $18,000
- Saving $500 a month reaches $18,000 in 36 months
- In a savings account paying 4% APY, $18,000 earns about $720 a year while it waits