Building an Emergency Fund (2025): How Much You Need & Where to Keep It
Learn how to build an emergency fund, how much to keep, the best places to store it safely, and a simple plan to reach your goal. Updated for 2025.
Emergency Fund: the basics
An emergency fund is money set aside for unexpected expenses (job loss, medical bills, urgent repairs). It protects you from high-interest debt and keeps your long-term investments untouched.
Think of it as your financial shock absorber. When life happens, an emergency fund helps you pay in cash—without breaking investments, borrowing from friends, or using credit cards.
How Much Emergency Fund Do You Need?
Common rule of thumb
- • Salaried, stable job: 3–6 months of essential expenses
- • Variable income/self-employed: 6–12 months
- • Single-income family: lean toward the higher end
Base it on essentials
Use monthly essential expenses (rent, groceries, utilities, EMIs, insurance) rather than your full lifestyle spend.
Tip
If you have high fixed commitments (rent + EMIs), build a slightly larger emergency fund so you can maintain on-time payments during disruptions.
Where Should You Keep an Emergency Fund?
The priority is safety + liquidity. You should be able to access it quickly without market risk.
- Savings account: Instant access, best for 1–2 months of expenses.
- Short-term FD / sweep FD: Higher interest, still relatively liquid.
- Liquid fund (low risk): Often T+1 access; read exit/load rules.
Avoid
Keeping your emergency fund in volatile assets (stocks/crypto) can backfire—markets may be down when you need the money most.
How to Build It (Practical Plan)
1) Start with a small milestone
Aim for ₹10,000–₹50,000 first (or 1 month of essentials).
2) Automate monthly transfers
Set an auto-transfer on salary day so you don’t “forget”.
3) Separate it from spending money
Use a separate account so it’s not used for non-emergencies.
4) Refill after using it
Treat refilling like paying a bill—make it the priority next month.