S2 Episode 3 — The Emergency Fund
Duration: 11:59 minutes
Before you invest a single euro, you need a buffer. What it is, how much, where to keep it, and how to build it as fast as possible.
Episode Overview
Duration: 11:59 minutes
Most people skip the emergency fund and almost everyone regrets it. This episode covers what it is, what it is not, how much you actually need, where to keep it, and how to build it as fast as possible — before investing a single euro in anything else. The emergency fund is not in competition with your investments. It is what makes them possible.
What You’ll Learn
- What an emergency fund is — and what it is not
- Why three to six months of essential expenses is the right target range
- Where to keep it and the two wrong directions most people take
- Why it must be liquid — and why investing it is a mistake
- How to build it fast and what to prioritise while you do
Key Takeaways
Build it before you invest anything
The emergency fund comes first — not when you have spare money, not alongside investing, but before. A smaller investment contribution for six months is a far better outcome than building an engine with no safety net underneath it.
Three to six months of essential expenses
Not your full salary — your essential expenses. Rent, food, transport, utilities, insurance. Three months if your situation is stable, six if you are freelance, self-employed, or in a sector where finding work takes longer.
Separate, accessible, and never invested
Keep it in a high-interest savings account — separate from your current account so you do not spend it slowly, instant access so you can reach it immediately, and never in anything that can go down in value.
Episode Summary (click to expand)
An overview of what’s covered in this episode.
In the last episode we looked at your salary — what lands, what leaves, and what is actually yours to work with. Today, before any conversation about investing, we need to talk about the thing most people skip and almost everyone regrets skipping: the emergency fund.
What Happens Without One
You have been doing everything right. You know your numbers. You have started investing, the engine is running. Then something happens — the car, the job, the medical bill, the boiler. It does not matter which one, because they all lead to the same place. You need money now, and it is not sitting anywhere liquid. So you sell your investments, stop your contributions, put it on the credit card, or ask someone for help. And just like that, the engine stops — or worse, goes into reverse.
What It Is — and What It Is Not
The emergency fund is a separate pot of money. Not invested. Not mixed in with your current account. Separate, accessible, and liquid — meaning you can reach it immediately, not in three days, not after a form. It is not a holiday fund. It is not a house deposit buffer. It is not a cushion for overspending. The moment you treat it as anything else, it stops doing its job.
How Much
Three to six months of essential expenses — not your full salary, your essentials: rent, food, transport, utilities, insurance. Three months is the minimum. Six is more comfortable. Beyond six, you are probably overinsuring and underinvesting. If your job is stable and your costs are low, three months is likely enough. If you are freelance, self-employed, or in a sector where finding work takes longer, lean towards six. If you are living at home with low fixed costs, three months is a small number — that is an advantage, use it.
Where to Keep It
Two wrong directions. First: keeping it in your current account mixed with everything else. You will spend it slowly without realising, and a current account earns nothing while inflation quietly erodes it every year. Second: investing it. If your emergency fund is in ETFs or anything that can fall in value, you face two problems at once — you need to sell, wait for settlement, and transfer funds, which takes days. And the moment you need your emergency fund is often the worst moment in the market. A job loss and a market downturn tend to arrive together.
The right place is a high-interest savings account with a regulated institution — instant access, no fixed term, no withdrawal penalty, and kept separate enough that you do not accidentally spend it. Out of sight, out of mind works in your favour here.
How to Build It
The emergency fund is not optional and not something you build with what is left over. It is the first financial commitment you make. Every dollar you can put aside goes here first — not a token amount, as much as possible, every month, until it is built. Yes, that may mean investing very little or nothing for a period. That is the right call. A smaller investment contribution for six months beats building an engine with no safety net underneath it.
Once built, protect it. If you ever use it for a real emergency, replenishing it becomes the next priority — before anything discretionary. Then you move forward. The emergency fund does not compete with your investments. It enables them.
The next episode covers the enemy in your wallet — credit cards, buy now pay later, and car loans. The tools designed to feel like help and cost you far more than they ever give back.