What does 'emergency savings' refer to?

Emergency savings refers to funds that are specifically set aside to cover unexpected expenses that may arise, such as medical emergencies, car repairs, or unexpected job loss. This type of savings is crucial for financial security because it provides a financial cushion that can prevent one from falling into debt or facing severe financial hardship when unanticipated costs occur.

Setting aside money for planned vacations, investing in high-risk assets, or funds aimed at boosting credit scores do not meet the criteria for emergency savings. These categories serve different financial purposes and do not provide the same immediate safety net that emergency savings offer in times of sudden financial need.