Hey, I am building my emergency fund. Please suggest how much emergency fund should I have? Is there a way to calculate it?
Honestly speaking, there is no definite or accurate answer to this question. The right amount depends on your lifestyle, income and how many people rely on you.
The general rule is to save at least 3-9 months of your regular expenses. But here is a simple way for you to figure it out:
- 3 months of expenses: This should be good if you have no dependents and a stable, easily replaceable job.
- 6 months of expenses: This is ideal if you have a family or individuals who are financially dependent on you.
- 9 months of expenses: This is suitable if you have an irregular or seasonal income, such as freelancers or commission-based earners.
In fact, the more you can save, the more at peace you can be. So, your emergency fund goal should be:
(Rent + Food + Utilities + EMIs + Insurance + Miscellaneous) × 3 or 6 or 9 months
Say, for instance, if your monthly expenses are ₹35,000, aim for ₹1.05 lakh to ₹3.15 lakh (₹35,000 × 3, 6 or 9).
It might sound like a big number, but do not stress. Start small. Even ₹500 or ₹1,000 a month helps. The key is consistency.
Remember, an emergency fund is not built overnight. It requires steady effort and smart planning.