Want to build ₹1.5 lakh emergency fund? We calculate how much monthly savings you’ll need
An emergency fund is an important component of long-term financial planning that sets aside money for unexpected, but urgent situations. This “rainy-day” fund must be separate from your regular savings. You will also need to regularly assess and adjust the savings amount to ensure that extenuating circumstances (job loss, sudden car repair, expensive medical bills) do not affect your day-to-day finances.
Experts note that sound financial planning includes provision for an emergency fund that can help future-proof your finances, build financial flexibility, and help tide over unforeseen situations without the need for loans or borrowings.
Today, we explain the 3-6-9 rule that salaried individuals and even those without stable income can use.
Building a ₹1.5 lakh emergency fund
An average investor can follow a simple thumb rule to calculate how much amount they need to accumulate as emergency fund. Clear Tax suggests that those with regular income should aim to save at least three to six months’ worth of monthly expenses, while those with unstable jobs or irregular income streams should increase their buffer to cover 9-12 months of expenses.
Those with irregular or unstable income include freelancers, individuals paid per project, etc.
Known as the 3-6-9 rule, this is a general guideline which prescribes saving for emergency as follows:
- Save three months of expenses if you are single and earn a steady income,
- Save six months of expenses if you have dependents and earn a steady income,
- Save nine months of expenses if you are single and your income is irregular,
- And save 12 months of expenses if you have dependents and your income is irregular.
- For individuals with more financial responsibilities due to medical conditions, financial obligations etc., the amount needed will be higher.
Overall, the actual corpus may have to be adjusted based on your lifestyle and requirements. Further, it is best to reassess and calculate your monthly expenditure from time-to-time. This helps in case of changes due to credit or loans and must reflect in your emergency fund goals accordingly.
For example, if your monthly spend is ₹25,000, for three, six, nine and 12 months that works out to ₹75,000, ₹1.5 lakh, ₹2.25 lakh, and ₹3 lakh, as emergency fund required, respectively.
The ₹1.5 lakh emergency fund assumes monthly expenses of ₹25,000 for someone with steady income and dependents (i.e. 25,000 x 6). Monthly expenses will include your non-negotiable expenditure for food, groceries expenses, water and electricity bills, home loan, internet bill, EMI(s), insurance premiums, loan repayments, school fees, transportation expenses, etc.
How to build your ₹1.5 lakh emergency fund?
Start with a target for three months and build more as you reach your goal. For example, if your monthly expense is ₹25,000 for six months that works out to ₹1.5 lakh as emergency fund. This can be built in stages, starting from ₹500-1,000 each month, or even a little more or less depending on your ability.
Thus, setting aside ₹5,000 per month in a simple savings account from your salary towards emergency fund could help build your buffer in 2.5 years. Depending on your choice of investment, you could further reduce this period down based on earnings from interest.
A quick tip is to automate deductions for fixed deposits or SIPs (your choice of investment for emergency fund) and ensure that extra income such as bonuses, tax refunds, or cash from side-hustles are deposited directly to the emergency fund till you hit your goal amount.
Monthly SIP for emergency fund
Calculated as 12% of your total emergency fund being invested in SIPs (liquid and / or overnight funds), this works out to — ₹9,000 for three months, ₹18,000 for six months, ₹27,000 for nine months, and ₹36,000 for 12 months. Here’s how much you would have to invest:
- ₹75,000: To build three months emergency fund requires ₹900/month in SIP at 6% rate of interest for a period of one year.
- ₹1.5 lakh: To build six months emergency fund requires ₹1,400/month in SIP at 6% rate of interest for a period of one year.
- ₹2.5 lakh: To build nine months emergency fund requires ₹2,300/month in SIP at 6% rate of interest for a period of one year.
- ₹3 lakh: To build 12 months emergency fund requires ₹3,000/month in SIP at 6% rate of interest for a period of one year.
Where to invest for emergency fund?
Experts suggest that when it comes to emergency fund, you should stay away from volatile assets such as penny stocks or risky equities.
Clear Tax suggests splitting your investments across liquid and easily accessible options. It noted that 30-40% of the investment should be immediately accessible in instruments such as a savings account or bank fixed deposits (FDs). While 60-70% should be invested in low-risk debt options like liquid or overnight mutual funds for better returns without sacrificing safety. Here’s a breakdown:
| Where to invest your emergency fund? | ||||
|---|---|---|---|---|
| Investment Option | Access Time | Risk Level | Returns (Approx.) | Best Use Case |
| Savings Account | Instant | None | 2.5%-4% | For immediate liquidity (1–2 months’ expenses) |
| Sweep-in FD | Within 1 day | Very Low | 5%-6.5% | Slightly better returns than savings |
| Liquid Mutual Funds | T+1 (next day) | Low | 4%-7% | For the bulk of the emergency fund |
| Overnight Funds | T+1 | Near Zero | 3%-5% | For ultra-conservative investors |
| Auto-Sweep Account | Instant (partial) | Very Low | 4%-6% | For salaried individuals who want automation |
| Source: Clear Tax | ||||
Disclaimer: This story is for educational purposes only. We advise investors to check with certified experts before making any investment decisions.
