Emergency fund

An emergency fund is money you keep aside for a sudden need, like a job loss, a medical bill, or an urgent repair. A common target is 3 to 6 months of expenses, kept somewhere safe and easy to reach, such as a savings account or a liquid fund, not locked away or invested in risky assets.

Why it comes before investing

An emergency fund is the foundation the rest of your money plan sits on. Without one, a single surprise forces you either to break a long-term investment at the worst time, or to borrow at high interest on a credit card or loan. With one, a shock becomes an inconvenience rather than a crisis, and your investments are left to compound undisturbed. That is why the usual advice is to build the fund first, then invest.

How big, and where to keep it

Three to six months of your essential expenses is the common range: nearer three if your income is stable and secure, nearer six or more if it is irregular or you are the sole earner. Size it on what you actually spend, not your salary. Keep it where it is safe and reachable within a day or two, such as a bank savings account, a sweep fixed deposit, or a liquid fund. It should not be in equity or anything that can be down exactly when you need it.

Building and using it

Build it gradually, treating the monthly contribution like a bill, until you hit your target. Use it only for genuine emergencies, and top it back up afterwards. Learn the full approach in the emergency fund lesson.