Sarah, a single parent, tells her mutual fund representative that she is concerned about unexpected expenses like car repairs or a sudden job loss affecting her ability to pay bills. She has no readily available savings. What is the most appropriate foundational financial planning recommendation for Sarah?

Question: Sarah, a single parent, tells her mutual fund representative that she is concerned about unexpected expenses like car repairs or a sudden job loss affecting her ability to pay bills. She has no readily available savings. What is the most appropriate foundational financial planning recommendation for Sarah?

Answer options:

• Invest all available funds into a high-growth equity mutual fund. ✅ Establish an emergency fund equivalent to 3-6 months of living expenses.
• Purchase a universal life insurance policy immediately.
• Sign up for a high-interest credit card for emergencies.

Correct answer: Establish an emergency fund equivalent to 3-6 months of living expenses.

Explanation: An emergency fund provides a crucial financial buffer against unexpected events, preventing the need to incur debt or withdraw from long-term investments. For most individuals, 3-6 months of living expenses is a suitable target.