In personal finance, money set aside for unexpected costs or lost income is called an emergency fund.
An emergency fund is a cash reserve intended for events such as job loss, urgent home repairs, medical bills, or major car repairs. Its purpose is to prevent a household from immediately relying on expensive credit or selling long-term investments when an unforeseen bill arrives.
Emergency savings differ from a sinking fund. A sinking fund saves gradually for a known future expense, such as annual insurance or a vacation, while an emergency fund addresses uncertain timing and cost. Financial guidance often discusses holding several months of essential expenses, but the appropriate amount depends on income stability, household obligations, insurance, and access to other resources.
The reserve is generally kept in an accessible, low-risk account rather than in volatile investments. It is not “wasted” money: its financial benefit comes from improving resilience and reducing the need to borrow during a crisis.