An emergency fund is money kept liquid and stable specifically to absorb an unexpected necessary expense — lost income, a medical need, an essential repair — without borrowing.
It is sized from your essential monthly expenses rather than your income or your full budget, because discretionary spending stops during a genuine emergency. Three to six months of essentials is the usual starting range, with the higher end suited to variable income or a single-earner household. Because it must hold its value on the exact day it is needed, it generally does not belong in volatile investments.