What is the purpose of having an emergency fund?

The primary purpose of having an emergency fund is to cover unexpected expenses. An emergency fund acts as a financial safety net that provides individuals with funds readily available for unforeseen situations such as medical emergencies, car repairs, job loss, or home maintenance issues. This financial buffer helps prevent individuals from going into debt or relying on credit cards when sudden expenses arise, ensuring they can manage their financial obligations without stress.

Having an emergency fund promotes financial stability by allowing people to handle crises as they come, thus supporting a more secure financial future. Maintaining this fund is crucial in helping individuals maintain their regular cash flow, as it enables them to address emergencies without derailing their long-term financial goals.