Emergency fund
Also: cushion
Money available instantly to cover several months of expenses. Not an investment and not meant to earn: its job is to be there on the bad day.
In the chapter
The cushion and the cover, before anything else
From the same chapter
- InsurancePaying a small certain amount to avoid exposure to a large unlikely one. It only makes sense when the blow it covers would ruin you.
- DeductibleThe share of the blow you pay before cover kicks in. Raising it cheapens the premium, and it is sensible right up to what you can absorb without flinching.
- Insurance premiumWhat you pay periodically to stay covered. Comparing premiums without comparing cover is comparing prices of different things.
- CoverageWhat the policy covers exactly and up to how much. What matters is not what it includes but what it excludes.
- Insurable riskThe unlikely but catastrophic kind. The likely and small kind is paid out of pocket: insuring it is expensive because the insurer knows it too.