Canfield Personal Finance Practice Exam 2026 - Free Personal Finance Practice Questions and Study Guide

The primary purpose of an emergency fund is to cover unexpected expenses. This financial safety net is crucial because it provides individuals with the necessary resources to handle unforeseen situations, such as medical emergencies, car repairs, or job loss, without having to rely on credit cards or loans. By having these funds readily available, it prevents further financial strain and allows for better financial stability during tough times.

In contrast, using an emergency fund for vacations or investing in high-risk stocks goes against the fundamental principle of maintaining liquidity for unexpected situations. Accumulating wealth is also important but is typically achieved through other types of savings and investment strategies rather than using an emergency fund.