An emergency fund is money kept aside only for surprises: a job loss, a medical bill, an urgent home or car repair. It stops one bad month from turning into credit card debt or a broken investment. Before you start investing for long-term goals, this fund should come first.
How to use the emergency fund calculator
- Enter your monthly essential expenses: rent or EMI, groceries, bills, school fees, insurance premiums and loan payments. Leave out things you could stop in an emergency, like eating out or travel.
- Choose how many months of expenses to keep.
- Enter the emergency savings you already have.
- Choose how many months you want to take to build the rest.
How many months should you keep?
| Your situation | Months of expenses |
|---|---|
| Salaried, stable job, two earners at home | 3 – 6 |
| Salaried, single income family | 6 |
| Self-employed, freelancer or commission income | 6 – 12 |
| Dependent parents or health concerns in the family | 9 – 12 |
Example
Your essential expenses are ₹40,000 a month and you want 6 months of cover. You already have ₹50,000 saved and want to finish in 12 months.
- Emergency fund needed = 40,000 × 6 = ₹2,40,000
- Still to save = ₹1,90,000
- Save every month = ₹15,833
Where to keep your emergency fund
The money must be safe and available within a day or two. Good places are a savings account, a sweep-in FD linked to your savings account, or a liquid mutual fund. Avoid shares, long lock-in products and anything that can fall in value right when you need it.
FAQ
How much emergency fund do I need?
Most people should keep 3 to 6 months of essential expenses. If your income is irregular or you are the only earner, aim for 6 to 12 months.
Should I invest before building an emergency fund?
Build at least a basic emergency fund first. Without it, a single emergency can force you to sell investments at a loss or borrow at high interest.
Does health insurance replace an emergency fund?
No. Health insurance covers hospital bills, but not lost income, repairs or other emergencies. You need both.
Can I use a credit card as my emergency fund?
It is risky. Credit card debt costs around 40% a year or more if not paid in full. See the credit card payoff calculator.