How to Build an Emergency Fund From Scratch in India in 2025

Table Of Contents

Understanding What an Emergency Fund Is
Why Every Indian Should Have an Emergency Fund
Setting a Realistic Emergency Fund Target
Creating a Dedicated Space for Your Emergency Fund
Making Savings Automatic
Adjusting Your Spending to Free Up Funds
Smart Use of Windfalls
Tracking Your Progress for Motivation
Choosing Where to Keep Your Emergency Fund in India
Knowing When to Use (and Not Use) Your Emergency Fund
My Personal Journey: Building an Emergency Fund on a Low Income
Final Thoughts: Small Steps Lead to Big Security

Life rarely follows the plan we make for it. One month everything looks fine, and the next a medical bill, a sudden job loss, or even a broken fridge can throw your entire budget off track. If you don’t have savings ready, these expenses can feel like a punch to the gut. That’s exactly where an emergency fund comes in—it’s not just a financial tip, it’s peace of mind.

When I first started writing about money on richerthanyesterday.com, I realized that building an emergency fund was the single most important move in my financial journey. Without it, every other decision—whether it’s investing, budgeting, or even planning for small goals—felt shaky. Think of it as the safety net that keeps you from falling when life throws a surprise.

Here’s the good news: you don’t need to be rich to start. Even if your savings account barely shows a balance today, you can begin small. In this post, I’ll walk you through how to set up your own fund from scratch, step by step, and make it work for the way we live in India. The goal isn’t just to save—it’s to protect yourself, your family, and your future from the unexpected.

Understanding What an Emergency Fund Is

Before you start building an emergency fund, it helps to know exactly what it is. Think of it as a financial safety cushion—a dedicated pool of money kept aside only for real emergencies. Not for birthdays, vacations, or shopping sprees, but for those unpredictable moments that can shake up your life and your savings account.

In reality, emergencies show up in many ways: a sudden medical bill, a car breaking down on the way to work, an urgent home repair, or even a job loss. In each of these cases, an emergency fund keeps you grounded. It allows you to cover the expenses without reaching for a credit card or drowning in debt.

When I first started richerthanyesterday.com, I believed I could always create an emergency fund later—after earning more, after things were “stable.” But over time, I realised that thinking was upside down. An emergency fund isn’t the last step of financial planning—it’s the very first. It’s the seatbelt you wear before you even start the journey of saving, investing, and building wealth.

Why Every Indian Should Have an Emergency Fund

In a perfect world, money problems wouldn’t exist. Jobs would be secure, medical bills would be cheap, and nothing unexpected would ever show up to mess with your plans. But let’s be real — especially here in India, life doesn’t always work that way. Financial security feels solid one month and shaky the next.

Take jobs, for example. I’ve seen friends go from getting a regular paycheck to being laid off almost overnight. With contract work and gig jobs becoming the norm, stability is kind of a myth. One month you’re doing fine, the next month you’re wondering how to pay rent. If you don’t have some backup cash set aside, even a single missed salary can completely mess up your budget.

And don’t even get me started on healthcare. Insurance helps, sure, but it rarely covers everything. I’ve had relatives who still ended up paying thousands out of pocket for medicines, scans, or post-surgery care. It adds up way faster than you think. I remember sitting in a hospital billing counter once, swiping a card for something I thought insurance had covered. That moment stung. That’s when it really clicked for me: an emergency fund isn’t some “nice to have” thing — it’s a must.

Setting a Realistic Emergency Fund Target

The biggest reason most people never start an emergency fund is simple: the number scares them. The moment someone says “three to six months of expenses,” your brain instantly jumps to lakhs of rupees, and you shut down. At least, that’s what happened to me. I thought, there’s no way I can save that much.

But here’s the trick — you don’t need to think about lakhs on day one. Start with the basics. Your emergency fund should cover your essentials — rent, groceries, electricity, EMIs, the stuff you can’t skip. Forget vacations or fancy dinners, this is just survival money.

Let’s say you spend around ₹20,000 a month. That means your safety cushion should be somewhere between ₹60,000 and ₹1.2 lakh. Sounds heavy, right? I felt the same. So instead of stressing, I broke it down. First ₹5,000, then ₹10,000, then ₹20,000. Small wins kept me going, and every milestone felt like I was leveling up in a game.

Honestly, the amount you start with doesn’t matter. What matters is showing up for it every month. I began with just ₹500. Not even kidding. One year later, it wasn’t just the balance that grew — it was the peace of mind. Knowing I had something to fall back on changed how I looked at money.

Calculate your Emergency Fund

Creating a Dedicated Space for Your Emergency Fund

If there’s one thing I’ve learned about money, it’s this: your emergency fund should never sit in the same place as your everyday spending money. The reason is simple—when both are in the same account, it’s just too tempting to swipe the card for “non-emergencies.” I’ve done it before, and trust me, the regret comes quickly.

The best solution is to open a dedicated savings account just for your emergency fund. Not only does this create a mental boundary, but it also adds an extra layer of discipline. Many Indian banks offer good options with competitive interest rates. For example, SBI Insta Plus, AU Small Finance, and IDFC First Bank all provide savings accounts that are easy to access yet still reward you with higher returns than a standard account.

I personally treat my emergency fund account like a “do-not-touch” vault. It’s not for new phones, not for end-of-season sales, and definitely not for impulse Zomato orders. It’s there for genuine emergencies—like medical bills, sudden travel, or an unexpected job loss. Knowing I have that separate fund gives me real financial security, because I don’t have to scramble or depend on credit cards when life throws a surprise my way.

Making Savings Automatic

Honestly, willpower sounds great on paper, but in real life it almost never works. One festival comes up, a birthday dinner happens, or some “limited-time” sale pops on your phone—and suddenly saving takes a back seat. I’ve been there too.

That’s why I started automating my savings. The trick is simple: tell your bank to move a fixed amount into a separate emergency fund account every month through auto-debit or standing instructions. Once it’s set, you don’t have to think about it—your money quietly builds up in the background.

And don’t worry if you can’t start big. Even ₹500 a week adds up to ₹2,000 a month—that’s ₹24,000 in a year without touching it. If your budget allows, push it to ₹1,000 or ₹2,000 a month and you’ll see your emergency savings grow much faster.

The truth is, it’s not about saving huge chunks at once. It’s about staying consistent. A small, regular deposit works way better than one-off big transfers you forget to repeat. Think of it like planting a few seeds every month—before long, you’ve got a strong financial safety net waiting for you when life throws surprises.

If you want to learn a simple framework for saving smarter, you can read my full blog on the 50-30-20 rule, where I’ve explained in detail how you can manage expenses and grow savings effectively.

Adjusting Your Spending to Free Up Funds

Building an emergency fund sounds great, but it feels tough when expenses keep piling up. The good news is, you don’t need to cut out all the fun from your life. It’s more about making a few small shifts until your savings account starts to look stronger.

Back when I started saving, I noticed little habits eating into my money. I was ordering food way too often, paying for three streaming subscriptions I barely used, and spending every weekend outside. Once I cut back on just those things, I freed up around ₹3,000 a month. That money went straight into my emergency fund instead of vanishing on random expenses.

The nice part is, it didn’t feel permanent. After I hit my first savings goal, I added a couple of my favorite expenses back in without guilt. For me, that balance was important—I was building financial security without feeling like I was punishing myself.

Smart Use of Windfalls

Every now and then, money shows up that you weren’t counting on—a Diwali gift from relatives, a small tax refund, or maybe a surprise company bonus. These little windfalls are honestly one of the easiest ways to give your emergency fund a quick push. Instead of letting them disappear on impulse buys, I try to funnel most of that extra cash straight into my savings account.

I still remember one of my first freelance payments. It wasn’t a huge amount, but I hadn’t planned for it in my monthly budget. For a moment, I thought of treating myself, but then I moved the whole thing into my emergency fund. That single choice nudged me much closer to my savings goal, and it felt way more satisfying than a temporary splurge.

Tracking Your Progress for Motivation

There’s a different kind of joy in seeing your emergency fund grow bit by bit. You don’t need fancy tools—sometimes a plain Google Sheet works just fine. But if you like visuals and reminders, apps like Walnut, Money Manager, or Goodbudget can make the process easier and even fun.

I still remember the day my emergency fund first touched ₹10,000. To anyone else, it might have looked like a small amount, but for me, it was huge. It proved that I was moving in the right direction. Hitting milestones like that gives you the push to keep going—and honestly, every little win deserves a small celebration.

Choosing Where to Keep Your Emergency Fund in India

Where you park your emergency fund makes a big difference—it’s not just about saving money, but also about keeping it safe and easy to access when life throws surprises.

A high-interest savings account is usually the simplest choice. You can pull money out instantly, though the returns are on the lower side (around 3–4% a year). If you want a little more growth, liquid mutual funds are worth looking at—they usually give 6–7% and still let you access your money in a day or two. Fixed deposits with partial withdrawal options sit somewhere in between, offering safety plus slightly better returns.

Personally, I don’t keep all my emergency money in one place. Around 70% stays in a savings account so I can pull it out anytime without stress, while the remaining 30% goes into a liquid mutual fund to quietly earn a little extra. This setup gives me peace of mind—cash when I need it and growth when I don’t.

Knowing When to Use (and Not Use) Your Emergency Fund

The hardest part of having an emergency fund isn’t building it—it’s resisting the urge to dip into it. Real emergencies are things like losing your job, sudden medical bills, urgent car or home repairs, or last-minute travel you can’t avoid.

But buying gifts, splurging on Diwali shopping, or grabbing a “can’t-miss” stock deal? That doesn’t count. Think of your emergency fund like a parachute—you only pull it when you absolutely need it, not because you feel like floating around on a sunny afternoon.

My Personal Journey: Building an Emergency Fund on a Low Income

When I started richerthanyesterday.com, I wasn’t earning much. Honestly, saving even ₹1,000 a month felt tough. Some months I thought, “Does this even make sense?” But I kept going.

By the end of the year, I had ₹12,000 saved. It wasn’t a big amount, but it meant I could survive at least two weeks without panicking. That small fund gave me the courage to take chances—like picking up freelance gigs and slowly turning this blog into my main work.

What I learned is simple: you don’t need a big income to save. You just need to start and stick with it.

Final Thoughts: Small Steps Lead to Big Security

Starting an emergency fund in India isn’t as impossible as it feels. Honestly, the first few months are the hardest—you save a little, look at the number, and think, “What difference will this even make?” But trust me, it adds up. Every ₹100 you put aside is you buying yourself a little more peace of mind.

Begin small. Maybe ₹100 this month, ₹500 the next, and slowly move to ₹1,000 or more when your budget allows. What matters isn’t the amount, it’s the habit.

And if you ever need straight-up, practical money advice without the boring jargon, you’ll always find it on richerthanyesterday.com. Start today—your future self will be so glad you did.