How big should a client's emergency fund be, and why does it come before investing?

How to answer

The standard rule of thumb is three to six months of essential living expenses held in cash or near-cash (high-yield savings, money market), with the higher end for clients with variable income, a single income source, or job instability. It comes first because it prevents the client from being forced to liquidate investments at a bad time or take on high-interest debt during an income shock. Only after the emergency fund and high-interest debt are addressed do you move surplus cash into longer-horizon investments.

Key idea: Three to six months of essential expenses in liquid cash.