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How Much Shall I Put in My Emergency Fund?

Adhil Shetty

Q: How much shall I put in my emergency fund? – Snehalatha

A: Uncertainty is perhaps the only certain thing about life. And while you may not be able to predict or control life’s uncertainties — like a sudden job loss, an accident or a close family member falling severely sick — you can still take steps to boost your preparedness in tackling an unanticipated turn of events. Having in place a substantial emergency fund is a great start to that end.

Ideally, you should have at least 3-6 months of your average monthly income in your emergency fund. And there’s no harm in saving up more, depending on your unique needs and other financial commitments.

But more importantly, your emergency fund should always remain accessible – like in a savings account, fixed deposit, recurring deposit or a liquid mutual fund. Many people think that their property, Public Provident Fund or even gold qualify for an emergency fund, but I disagree. Simply because liquidating them might be time-consuming, and time is a luxury when you’re taking on an unexpected situation which requires urgent responses.

As such, an emergency fund will come to your rescue during an unanticipated situation and will minimize your dependency on a high-interest charging loan and retain your self-esteem as you won’t have to seek financial help from anyone.

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