How Much Emergency Fund Should I Have?

2020 was a wild ride, teaching us that emergencies are like unexpected guests – they show up uninvited and can mess with more than just your health. Take the COVID-19 saga, for example; it threw the entire world into a loop. With a virus that spreads like wildfire and no magic vaccine, there’s a serious risk of catching it.

Now, some folks might have superhero immunity, but for those not so lucky, getting hit by the virus means dealing with a whole bunch of expenses – quarantine, hospital stays, treatments, meds, and even the aftercare, all tangled up with the rising cost of medical stuff. And if your wallet isn’t ready for that kind of party, it could mean kissing your life savings goodbye. That’s where having an emergency fund swoops in to save the day. But here’s the catch – how much should you stash away for that rainy day? We’ll figure out that answer in this blog.

First off, think about the must-haves – the basics that keep your life on track:

  • Keeping a roof over your head. (a.k.a. Housing)
  • Putting food on the table.
  • Covering health expenses (including the insurance safety net).
  • Handling utility bills.
  • Getting from A to B (Transportation)
  • Taking care of personal needs.
  • Managing any debts hanging over your head.

How Much Emergency Fund Should I Have?

Think about it like this: your emergency fund should cover 3 to 6 months’ worth of your expenses. So, if you bring in ₹40,000 monthly and spend ₹25,000 on regular stuff, your emergency fund should be around ₹75,000 to ₹1,50,000.

Now, you can split this fund into two parts.

First, there’s the part for big emergencies that don’t happen a lot, like a major disaster or sudden health issues. Put this part in investments that give a bit more interest, even though it might take a bit to get the money when you need it.

Then, there’s the part for immediate needs in emergencies. This won’t give much interest, but you can get to the money right away. It’s like a quick fix for extreme situations until you can access the money in the other part of your fund.

How to Calculate How Much to Put in Your Emergency Fund?

To figure out your emergency fund, tally up your monthly essentials like rent, food, clothing, school fees, EMIs, and miscellaneous expenses. Multiply this sum by six to ensure you’ve got a solid financial cushion for unforeseen circumstances.

Simple equation: (Monthly expenses) x 6 = Emergency Fund

How to Build an Emergency Fund?

We have a whole guide on how to create an emergency fund which you can refer to start your journey. Since emergency funds are best kept in low-risk investments, you have a few options to pick from – like putting it in your savings account, going for a fixed deposit (FD), recurring deposit (RD) or choosing safe investments like debt mutual funds such as an ultra-short-duration fund or liquid funds.

Freo Could be Your Go-to Spot for Stashing Away That Emergency Fund

When it comes to parking your emergency fund, the key is having it handy when life throws you a curveball and making sure it grows a bit in the background. That’s where Freo’s digital savings account steps in. It gives you the flexibility to get to your cash when you need it (hello, liquidity!), all while earning more interest compared to your regular savings account. It’s like having the best of both worlds for your emergency fund game.

Don’t wait for an emergency to strike! Be financially prepared by storing your emergency fund in a high-interest digital savings account by Freo.

Open yours today!

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