Many individuals and families unfortunately have not taken the time or expended the energy to develop a financial plan. They are generally reactive instead of proactive, patching together their finances with bandaids, only dealing with an issue that forces them to react. Some unplanned for financial issues allow at least a short period of time to react and others don't. When there is no time to develop even a short-term plan to resolve a financial issue, then you are in the mist of a financial emergency. Planning for a financial crisis or emergency should be a basic part of your overall financial plan.
Most financial advisors agree that it's important to have an emergency fund.
It's there to cover an unexpected large repair bill, pay living expenses during a stretch of unemployment or temporary disability, or pay an unexpected medical or tax bill. Some advisors recommend establishing an emergency fund even before you begin investing, so that you won't be forced to sell investments in a down market to cover an emergency. What advisors don't agree on is where to stash emergency fund money while waiting around for an emergency. To decide where to put your money, you first need to calculate how much to save in an emergency fund. The rule of thumb is three to six months' worth of take-home pay.