An emergency fund is money kept available for unexpected events such as temporary income disruption, urgent household expenses or other short-term needs.
Start with essential expenses
List the expenses that would still have to be paid if discretionary spending stopped: housing, food, utilities, transport, essential insurance premiums, education commitments and debt obligations.
Multiply that essential monthly figure by a chosen number of months. The appropriate buffer depends on income stability, family responsibilities, insurance coverage and access to other liquid resources.
Keep the purpose separate
An emergency reserve has a different job from a long-term wealth-creation portfolio. Its priority is accessibility and stability, not maximising long-term returns.
Review it periodically
The target can change after a job change, a new loan, marriage, a child, a change in household expenses or a change in income structure.
A simple emergency-fund calculation is available on the Nandita Finserv website.