Emergency Fund
Money saved for unexpected expenses.
What does it mean? (Simple)
An emergency fund is a savings buffer for unexpected situations like job loss, medical emergencies, or urgent repairs. It's not for planned expenses or investments.
The general rule is to save 3-6 months of your monthly expenses. If you spend ₹40,000/month, you should have ₹1.2 to ₹2.4 lakh set aside.
Keep it in liquid, accessible places: savings account for 1-2 months' worth, and liquid funds or sweep-in FDs for the rest.
Example with ₹ numbers
Your monthly expenses are ₹35,000. You save 4 months of expenses = ₹1,40,000 in a mix of savings account and liquid fund.
Common mistakes to avoid
- ⚠️Investing emergency fund in stocks (too risky)
- ⚠️Not having one before investing in other assets
- ⚠️Using it for non-emergencies like vacations
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⚠️ Educational only: This explanation is for learning purposes. Please consult a financial advisor for personalized advice.