Building an Emergency Fund
Lesson 2 of 4 in Money Foundations · 7 min read
An emergency fund is the shock absorber of your financial life.
How much?
A common guideline is 6 months of essential expenses. If your income is irregular or you have dependants, consider 9 to 12 months.
Where to keep it
The priority is safety and access, not returns. Savings accounts, sweep-in fixed deposits or liquid funds are commonly used. Avoid equity for this money because markets can fall exactly when you need cash.
Build it step by step
Start with one month of expenses, then grow it gradually. Treat any bonus or windfall as an opportunity to top it up.
Use it only for emergencies
Job loss, medical needs or urgent repairs qualify. A sale or a holiday does not. After using it, make rebuilding it your first financial priority.
Key takeaways
- Aim for 6 months of essential expenses
- Keep it liquid and low-risk
- Rebuild it immediately after use