Emergency Fund in India: Why 24–36 Months of Expenses Is the New Rule

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 Emergency Fund Explained: Why 6 Months Is No Longer Enough



What Is an Emergency Fund?

An emergency fund is money kept aside to protect your family during unexpected situations.

These situations may include:

  • Job loss or salary cut

  • Medical emergencies

  • Business slowdown

  • Situations like COVID, lockdowns, or long illness

This fund is not for investment or returns.
Its only purpose is safety and peace of mind.

Why the Old “6 Months Rule” Is Not Enough Anymore

Earlier, financial advisors suggested keeping 6 months of expenses as an emergency fund.

But COVID clearly showed us that:

  • Job losses lasted many months

  • Businesses took 1–2 years to recover

  • Medical and household expenses increased suddenly

  • EMIs, school fees, and medicines continued without pause

For many families, 6 months of savings was not enough.

The New Practical Rule: 24–36 Months of Expenses

Today, a safer approach is to keep:

👉 24 to 36 months of total household expenses

This should include:

  • House rent or home EMI

  • School / college fees

  • Grocery and daily expenses

  • Electricity, water, internet, phone

  • Insurance premiums

  • Medical expenses

This amount gives you time, not panic, during difficult periods.

Where Should You Keep Your Emergency Fund?

Emergency money should be:

  • Safe

  • Easily available

  • Low risk

The best option is Bank Fixed Deposits (FDs).

Smart Way to Use Fixed Deposits

Instead of keeping one large FD, use this method:

  • Break your emergency fund into 3–6 Fixed Deposits

  • Each FD can cover 3 to 6 months of expenses

  • Choose short to medium tenure FDs

Benefits:

  • You can break only what you need

  • Remaining FDs continue earning interest

  • Current FD returns are around 6%–7%

This gives both liquidity and stability.

Should Emergency Fund Be in Mutual Funds or Stocks?

❌ No.

Why?

  • Markets can fall when emergencies happen

  • You may be forced to sell at a loss

  • Emergency money must not depend on market conditions

Emergency fund is about certainty, not returns.

Emergency Fund Is Not About Fear, It Is About Freedom

A strong emergency fund gives you:

  • Confidence during crisis

  • Ability to make calm decisions

  • Protection for your family

  • Freedom from loans or panic selling

Think of it as your financial shock absorber.

Simple Summary

  • Old rule: ❌ 6 months expenses

  • New reality: ✅ 24–36 months expenses

  • Best place: ✅ Bank Fixed Deposits

  • Strategy: ✅ Multiple FDs of 3–6 months each

  • Goal: ✅ Safety, stability, peace of mind

Final Thought

Insurance protects you from specific risks.
Emergency fund protects you from everything else life throws at you.

Build it slowly but build it strong.

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