Unit 2 · Level 1 · The emergency fund
What counts as an emergency
A fund with no rules gets spent. So use three tests. Unexpected: you could not reasonably have seen it coming. Necessary: your life genuinely does not work without it. Urgent: it cannot wait three months while you save. A spend has to pass all three. A boiler dying in January passes. A holiday you booked in advance fails the first test. A newer phone fails the second and third. That is not about discipline for its own sake, it is about the fund still being full on the day something real happens.
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What you get asked
Which of these clears all three tests: unexpected, necessary and urgent?
The boiler is a surprise, heating is necessary, and January will not wait. The other three each fail at least one test, usually more than one.
Put the questions in the order you ask them before touching the fund
Thirty seconds of asking is enough. The point of a written rule is that you decide once, calmly, instead of every time under pressure.
Match each expense to where the money should come from
Only one of these is a shock. The other three have dates attached, which means they can be saved for in advance rather than absorbed.
A holiday is not an emergency. It is a ___ expense, so it deserves a small pot of its own.
These smaller pots are often called sinking funds. Put €50 a month aside for twelve months and the €600 trip arrives already paid for.
Why keep planned costs like holidays and car tax out of the emergency fund?
A fund used for known costs is never full. Give predictable spending its own pot and the emergency fund stays what it says on the label. 🐜
The rest of this unit
The cash buffer that has to exist before any market does, because it is what stops a bad month from becoming a forced sale.