What is one major purpose of having an emergency fund?

Having an emergency fund serves as a financial safety net specifically designed to cover unexpected expenses or to replace lost income during times of hardship, such as job loss or medical emergencies. The primary objective of this fund is to provide liquidity and peace of mind, ensuring that individuals can manage sudden financial challenges without resorting to high-interest debt or disrupting their long-term financial plans.

This safety net is vital because it allows individuals to weather financial storms without derailing their overall financial health. By having readily accessible funds, people can handle emergencies such as car repairs, medical bills, or other unforeseen costs. This foundational principle emphasizes the importance of financial preparedness, thereby promoting greater stability and security in one’s financial life.