SECTION 3 OF 8
The basics
An emergency fund is cash set aside for an unexpected bill or a loss of income. Its purpose is to be available when needed. The amount depends on a person’s costs and circumstances; even a small cushion can help.
Debt is money owed. Interest is a cost of borrowing, and fees can add more. The interest rate, minimum payment and repayment terms help explain the cost of a debt. These everyday costs are part of understanding the bigger retirement picture.
A simple example
Pat’s car needs a repair. A cash cushion can help pay for it without adding the whole bill to a credit card. This money has a different job from long-term retirement investments.
Useful resources
- CFPB: building an emergency fund (opens in a new tab)
Explains the purpose of emergency savings and the factors that affect a cash cushion.
- U.S. Department of Labor: preparing for retirement (opens in a new tab)
An overview of how everyday finances connect with retirement saving.
How this connects
Short-term savings and long-term retirement money have different purposes. Next, learn about the accounts used for retirement.
U.S. retirement education · Examples are illustrative. How we create these resources.
From the creator of Friendly’s Financial on YouTube. General education, with no personal financial recommendations.