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A to Z of Emergency Funds
Your only guide to understand and start an emergency fund
SK
March 03, 2025
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This is the article #3.
checkout the previous ones-
Today, let’s talk about A to Z of emergency funds!
Trivia: Do you know how many Indian households do not have 6 months of Emergency funds? The answer is within the article, you’ll find out soon!
Imagine this—Ravi, a 32-year-old IT professional in Bangalore, gets a sudden call.
His father has fallen ill, and immediate hospitalization is required.
The hospital asks for a ₹1,00,000 deposit. Ravi has a credit card, but maxing it out means hefty interest rates.
He doesn’t want to take a loan either. Fortunately, he has an emergency fund. Within minutes, he transfers the required amount—no stress, no debt, no financial panic.
What Qualifies as an Emergency?
Not every unexpected expense is an emergency.
A last-minute Goa trip with friends? Not an emergency.
A sudden job loss or medical emergency? Absolutely!!
Here’s what truly qualifies:
Medical emergencies – Hospitalization, surgeries, or urgent treatments not covered by insurance.
Job loss or pay cuts – Providing a cushion while looking for another job.
Urgent home or car repairs – Leaky roofs, broken pipes, or a dead car battery.
Family emergencies – Sudden need to travel for family crises.
Legal emergencies – Unexpected legal expenses due to personal or family issues.
Natural disasters – Damage to property due to floods, earthquakes, or cyclones.
Why Do You Need an Emergency Fund?
For the middle-class Indian, financial security isn’t just about earning well—it’s about being prepared.
According to a survey titled “India Money Habits” by Finology, 75% of Indian households do not have emergency funds cover six months of expenses in case of income loss!
An emergency fund ensures that:
You don’t rely on loans or credit cards with 40%+ interest rates.
You have mental peace knowing that a crisis won’t derail your financial plans.
You avoid dipping into long-term investments like mutual funds or fixed deposits meant for future goals.
You can maintain your standard of living without stress.
When Should You Use It?
Let’s talk about Priya, a school teacher in Delhi. Her AC breaks down in peak summer. Should she dip into her emergency fund? No- because this is a foreseeable expense.
She should plan for such costs in a separate “home maintenance” fund. However, if she faces a salary delay and struggles to pay rent, that’s a valid reason to use her emergency fund.
Ask yourself 3 questions before using your fund:
Is this expense unavoidable and urgent?
Do I have any other way to cover it without disrupting my financial goals?
Will using this money now put me in a tighter spot later?
Who Doesn’t Need an Emergency Fund?
Wait a second, not everyone needs a large emergency fund.
If you:
Have a stable government job with assured pension and benefits.
Live with family with minimal expenses and no financial responsibilities.
Have significant liquid investments that can be accessed instantly without penalties.
Have multiple sources of passive income that can sustain emergencies.
That said, most salaried and self-employed individuals should have one. And, my friend, majority of Indian middle-class people fall in this category! So, yeah, we need one!