Emergency fund: how many months of expenses to keep
3 months for a secure job, 8 for a private-sector sole earner, 12 for freelancers. See your number, how long it takes to build, and where to keep it.
5 min read
"Keep 6 months of expenses aside" is the rule everyone quotes. It's a fair start for a private-sector salary, but it's too much for some people and far too little for others.
The right number depends on how fast you could replace your income, and who else depends on it. Here's how our emergency fund calculator works it out.
What counts as one month
Count what you'd still have to pay with no income: rent, groceries, bills, school fees, insurance premiums, and loan EMIs, which don't pause when your salary does. Leave out holidays, eating out and investments.
Here that's ₹40,000 of essentials plus a ₹10,000 EMI: ₹50,000 a month.
How many months, and why
| Situation | Months | Fund |
|---|---|---|
| Government job, two incomes at home | 3 | ₹1.5 L |
| Private-sector job, only earner for two | 8 | ₹4 L |
| Freelancer, only earner, no health cover | 12 | ₹6 L |
The rules behind it:
- Start from how long a new income would take. 3 months for a government or PSU job, 6 for a private-sector salary, 9 for freelance or business income.
- Add 2 months if you're the only earner and others depend on you. Take 1 off if there's a second income.
- Add 2 months without health cover of your own, because a hospital bill would come out of this fund.
How far along are you?
Figure 1 from the Emergency fund calculator
The 8-month fund, one block per month, with ₹1 L saved
How to read it
- 1The filled blocks are the months you're covered today: ₹1 L buys 2 months at ₹50,000 a month.
- 2The striped blocks are still to save: ₹3 L. Putting aside ₹15,000 a month gets you there in about 1 yr 7 mo.
Change your job type, dependents and health cover. The months and the ready date update as you go.
Where to keep it
An emergency fund needs to be there the day you need it, not earn the most. Split it by how fast you'd need each part:
| Where | How fast | Amount | Interest a year |
|---|---|---|---|
| Savings account | Instant, UPI and ATM | ₹50K | ₹1,500 |
| Sweep-in FD | Instant, breaks as needed | ₹1 L | ₹6,500 |
| Liquid mutual fund | Next working day | ₹2.5 L | ₹17,000 |
- Savings account: one month for instant UPI and ATM access. Bank deposits are insured up to ₹5 lakh per depositor per bank.[1]
- Sweep-in FD: earns FD interest but breaks automatically when your balance runs low.
- Liquid mutual fund: the rest, typically paid out the next working day.
Not in stocks or equity funds: a job loss often comes in the same downturn that drops the market.
Once it's full
Stop adding and send that monthly amount to your goals instead. The budget calculator shows how your savings split works out.
What this doesn't mean
- These are rules of thumb. A niche skill, a long notice period or family support may let you keep less.
- Interest rates vary. The rates in the table are typical, not quotes; interest is taxed at your slab.
- Top it up as life changes. A new EMI, a child or a move to freelancing all raise the number.
Growth while building assumes about 6% a year. Months are capped between 3 and 12. For illustration only, not financial advice.
Sources
- [1]Deposit insurance: bank deposits insured up to ₹5 lakh per depositor per bank (opens in a new tab)Deposit Insurance and Credit Guarantee Corporation (RBI)