Emergency Fund Planning: How Much to Save and Where to Keep It

3/23/20251 min read

Emergency Fund Basics: Why, How Much, and Where to Save

Introduction

Financial planning isn't complete without an emergency fund. It's your personal financial safety net—protecting you from unexpected expenses, job loss, or medical emergencies without derailing your goals. In this blog, we’ll break down the importance of an emergency fund, how much to save, and where to park it.

1. What Is an Emergency Fund?

An emergency fund is a dedicated amount of money set aside to cover sudden, unforeseen expenses. It helps you avoid dipping into savings, taking on debt, or liquidating investments during a crisis.

2. Why You Need One

Job loss or pay cut
Medical emergencies
Home or car repairs
Unexpected travel or family situations

With an emergency fund, you maintain control during uncertain times.

3. How Much Should You Save?

A good rule of thumb:

3 to 6 months of essential living expenses
Include rent, groceries, utilities, EMIs, insurance, and transportation

If your job is unstable or you're self-employed, aim for 6–12 months.

4. Where to Keep Your Emergency Fund

Prioritize liquidity and safety:

High-interest savings account
Liquid mutual funds
Sweep-in fixed deposits

Avoid locking it in long-term or volatile assets like equity or PPF.

5. How to Build It Slowly

Start small (₹500–₹2,000/month)
Automate savings into a separate account
Redirect bonuses, tax refunds, or side income

Every little bit adds up over time.

6. When to Use It (and When Not To)

✅ Use for:

Job loss
Emergency hospitalization
Urgent repairs

❌ Don’t use for:

Shopping, vacations, or lifestyle upgrades

It’s for needs, not wants.

Final Thoughts

Your emergency fund is not just a savings account—it’s peace of mind. Building it may take time, but it's one of the most important steps toward financial independence.

Looking to build a solid emergency fund plan? One Solution can guide you with tools and strategies tailored to your financial situation.