When people talk about finance, they often jump straight to stock investing, trading, or complicated derivatives. But the truth is simple:
If your personal finances aren’t stable, you are starting your financial journey on the wrong foot—no matter how much you know about markets.
Before your first stock purchase, your very first SIP, or your first trading setup, you need something far more fundamental:
👉 An Emergency Fund
This article explains what an emergency fund is, why it matters, how much you need, and the best ways to build and store it.
Why an Emergency Fund Is Non-Negotiable
Let’s begin with a real story.
In 2020, during the first COVID wave, many people upgraded their homes for work and online classes. Laptops, printers, internet upgrades—everything came at a premium due to shortages.
Just weeks later, many families—including the author's—faced life-threatening medical emergencies. Hospital beds were scarce, and treatment costs ran into lakhs of rupees.
All within a span of days.
In such moments, you don’t get time to “plan finances.”
You need money now.
This is exactly why an emergency fund exists—to protect you from unpredictable shocks like:
- Medical emergencies
- Job loss
- Sudden home repairs
- Critical travel
- Natural disasters
- Financial disruptions
While emergencies cannot be prevented, your preparedness is entirely in your control.
An emergency fund ensures:
- You avoid panic
- You avoid high-interest debt
- You avoid selling long-term investments at the wrong time
- You remain financially stable even under emotional stress
How Much Should You Save?
There is no universal number—because every family is different.
Experts often say “6 months of expenses,” but this is only a guideline.
A better approach:
Sit with your family and decide an amount that gives all of you peace of mind.
For some families, this could be:
- 6 months
- 10 months
- 15 months
There is no right or wrong number—only the number that helps you sleep well at night.
Example:
If your family expenses are ₹50,000 per month
→ 10 months = ₹5,00,000 emergency fund target
How to Build Your Emergency Fund?
Step 1: Set Your Target
Define the exact amount you need (ex: ₹5 lakhs).
Step 2: Accumulate It Gradually
Two ways to build it:
1. Save monthly until you reach the target
Example: save ₹15,000–₹20,000 every month.
2. If you have existing savings, carve out the emergency fund immediately
If you already have ₹10–12 lakhs saved, separate ₹5 lakhs right now.
Most people complete their emergency fund in a few months when they make it a priority.
Where Should You Keep Your Emergency Fund? (Very Important)
This is where most people go wrong.
❌ NEVER invest your emergency fund in:
- Stocks
- Equity mutual funds
- High-risk instruments
Why?
Because emergency money should be 0% volatile and 100% accessible.
The fund must stay safe and stable at all times.
The purpose is stability—not returns.
✔️ Best Places to Park Your Emergency Fund
- Fixed Deposit (FD) – simple, safe, reliable
- Liquid Mutual Funds – low volatility, easy withdrawal (T+1)
- Short-term Bond Funds – moderate and stable
- Arbitrage Funds (for advanced users) – low risk and tax-efficient
The author uses a split:
- Part in FD
- Part in arbitrage fund
How to Access the Money During Emergencies
A liquid fund or arbitrage fund may require T+1 (one business day) to credit the money.
What if you need the money right now?
✔️ Smart Strategy:
Use your credit card temporarily.
- Pay bills using the credit card
- Wait for your emergency fund withdrawal (T+1)
- Repay the credit card before the due date
This gives you up to 25 days of free credit, without paying any interest.
This is one of the smartest uses of a credit card.
After Using the Fund — Rebuild It
This is another mistake many people make:
They build an emergency fund…
Then use it for:
❌ A Europe trip
❌ A new iPhone
❌ A big shopping spree
None of these are emergencies.
Whenever the fund is used for a genuine emergency, refill it immediately.
Your emergency fund is not a comfort fund.
It is a protection shield.
Final Thoughts
An emergency fund is the foundation of every solid financial life.
Before stocks, SIPs, portfolios, trading, or index funds—start here.
✔️ It protects your family
✔️ It reduces financial stress
✔️ It prevents unnecessary debt
✔️ It keeps your long-term investments untouched
If you already have an emergency fund, ask yourself:
Where have you parked it, and how quickly can you access it?
In the next part of this personal finance series, the topic will be:
👉 Insurance — Your Second Layer of Financial Protection
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