The question is best answered by thinking of what happens if we don't have one! 

An emergency fund is intended to help us meet unknown risks or unplanned events. 

If we don't have an emergency money parachute when we need one, there are two options: 

  • Borrow and end up in debt (friends, family, banks, credit cards)
  • Use some hard-earned savings or liquidate some investments before they are ready and lose some gains

The net result is that not having an emergency fund can cost us dearly and make a major dent in our net worth.