How to Build an Emergency Fund
An emergency fund is your financial safety net. Learn how to build one before investing in anything else.
Why You Need an Emergency Fund FIRST
Before investing in stocks, mutual funds, or any other instrument, you need 3-6 months of expenses saved. This fund protects you from job loss, medical emergencies, or unexpected expenses without dipping into investments or taking loans.
Minimum: 3 months expenses
For stable jobs, dual income households
Recommended: 6 months expenses
For most people - provides adequate cushion
Extended: 9-12 months
For self-employed, single income, uncertain jobs
Savings Account
Instant access, low returns (3-4%)
Liquid Mutual Fund
T+1 withdrawal, better returns (6-7%)
Flexi Fixed Deposit
Auto-sweep facility, good compromise
Calculate Monthly Expenses
Include rent, EMIs, utilities, groceries, insurance premiums, and essential spending
Set Target Amount
Monthly expenses × 6 = Your emergency fund target
Open Separate Account
Don't mix with regular savings. Consider a sweep FD or liquid fund
Automate Savings
Set up auto-debit of 10-20% of income to this fund until target reached