Life rarely sticks to the script we write for it. One moment you feel financially secure, and the next, an unexpected expense can leave you scrambling for solutions. It could be a sudden medical emergency, a job loss, or an unplanned repair that drains your savings. These are the moments when an emergency fund proves to be more than just a financial strategy—it becomes a lifeline.
Through my own journey to financial stability and freedom, which I’ve shared on my blog richerthanyesterday.com, I’ve learned that building an emergency fund is not just an optional step; it is the foundation upon which all other financial goals rest. Without it, every other aspect of money management feels like walking on a tightrope without a safety net.
In this post, we’re going to explore how to create an emergency fund from scratch, specifically tailored for those living in India. Whether you earn a comfortable salary or are just getting by, this guide will show you how to get started—even if your current savings account shows a balance of zero.
Understanding What an Emergency Fund Is
Before you start building, you need to understand exactly what you’re building. An emergency fund is a dedicated pool of money set aside solely for unforeseen expenses. These are not the predictable bills or the holiday you’ve been planning for months—these are events that catch you off guard and threaten your financial stability.
In real life, emergencies can take many forms: sudden hospitalization for a family member, a car breakdown that needs immediate fixing, an urgent home repair, or even a loss of income due to layoffs. In all these situations, having an emergency fund ensures that you can act quickly without the added burden of falling into debt.
When I first started richerthanyesterday.com, I used to think that an emergency fund was something I could “get to later” once I was earning more. I soon realised that this mindset was backwards. An emergency fund is the first step, not the last. It’s the seatbelt you put on before you even start driving down the road of investments and wealth-building.
Why Every Indian Should Have an Emergency Fund
In a perfect world, everyone would have health insurance, stable jobs, and zero exposure to natural or economic disasters. But in the real world—especially in India—financial security is often fragile.
One of the main reasons Indians need to prioritise emergency funds is job instability. While the gig economy and remote work opportunities have opened new doors, they have also eroded traditional job security. Sudden layoffs are no longer rare; they’re becoming a part of the new normal.
Another undeniable factor is healthcare costs. Even with insurance, many medical procedures in India still require significant out-of-pocket payments. From expensive diagnostic tests to post-surgery medicines, bills can escalate quickly.
Then there’s the growing frequency of natural disasters—floods, cyclones, and earthquakes—that can disrupt not only your living situation but also your income. Having a financial buffer during such events isn’t just convenient; it’s essential.
Finally, there’s the mental peace factor. Knowing that you have funds tucked away for emergencies helps you sleep better at night. It reduces stress and allows you to make life decisions without the constant fear of “what if something goes wrong tomorrow?”
When I created richerthanyesterday.com, my aim was to help people break free from financial fear, and building an emergency fund is one of the most powerful tools to achieve that.
Setting a Realistic Emergency Fund Target
Many people hesitate to start building an emergency fund because they get overwhelmed by the target amount. They imagine they need lakhs of rupees saved before it counts. In reality, you start small.
A healthy emergency fund should cover three to six months of your essential expenses—not luxuries, just the basics. These essentials include rent, groceries, utilities, loan EMIs, and basic transportation costs.
For example, if your monthly expenses come to ₹20,000, your goal range should be between ₹60,000 and ₹1.2 lakh. When I first began, that number seemed impossibly large to me. So I focused on smaller milestones—₹5,000, then ₹10,000, then ₹20,000. This made the process far less intimidating.
The most important thing to remember is that your starting point doesn’t matter as much as your consistency. I began with just ₹500 a month, and within a year, I could see the difference—not just in my account balance, but in my sense of security.
Creating a Dedicated Space for Your Emergency Fund
One of the most effective strategies for protecting your emergency fund is to keep it separate from your everyday spending money. When both are in the same account, it becomes too easy to dip into your savings for non-emergencies.
Opening a dedicated savings account with a bank that offers competitive interest rates can make a huge difference over time. Options like SBI Insta Plus, AU Small Finance, and IDFC First Bank offer decent interest while giving you quick access to your money when needed.
Personally, I like to think of my emergency fund account as a “do not touch” vault. It’s not there for impulse shopping or seasonal sales—it’s there for moments when I genuinely have no other option.
Making Savings Automatic
If you rely solely on willpower to save, chances are you’ll find reasons to skip a month. Automation is your best ally here. Set up an auto-debit or standing instruction so that a fixed amount is transferred to your emergency fund every month without you having to think about it.
Even small amounts matter. If you save ₹500 a week, that’s ₹2,000 a month—₹24,000 a year without lifting a finger. If your budget allows, start with ₹1,000 a month, and gradually increase the amount as your income grows.
Consistency beats size. A smaller, regular contribution will get you further than large, sporadic deposits.
Adjusting Your Spending to Free Up Funds
Building an emergency fund doesn’t mean you have to live a joyless life—it just means making short-term adjustments for long-term stability.
When I was in my early savings stage, I switched to home-cooked meals instead of frequent dining out, paused my streaming subscriptions, and cut down on weekend outings. These small lifestyle changes freed up an extra ₹3,000 per month, which went straight into my emergency fund.
It wasn’t about depriving myself forever. Once my emergency fund hit my initial goal, I could reintroduce some of these expenses into my life guilt-free.
Smart Use of Windfalls
Unexpected income is a golden opportunity to boost your emergency fund quickly. Whether it’s a Diwali gift, a tax refund, or a company bonus, try to allocate most—or even all—of it to your savings until you hit your target.
This approach helped me accelerate my progress dramatically. Early in my journey, I received a modest freelance payment I hadn’t budgeted for, and instead of spending it, I put the entire amount into my emergency fund. That one decision moved me much closer to my goal.
Tracking Your Progress for Motivation
There’s something deeply satisfying about watching your emergency fund grow. Whether you use a simple Google Sheet or a budgeting app like Walnut, Money Manager, or Goodbudget, tracking your savings keeps you motivated and accountable.
I still remember the first time my emergency fund crossed the ₹10,000 mark—it was a small number compared to my end goal, but it felt monumental. Every milestone, no matter how small, is worth celebrating.
Choosing Where to Keep Your Emergency Fund in India
Where you store your emergency fund matters. The key is balancing safety, liquidity, and reasonable returns.
A high-interest savings account offers maximum liquidity and is ideal for immediate needs, but the returns are modest at around 3–4% annually. Liquid mutual funds can offer better returns—around 6–7%—while still allowing you to access your money within one to two days. Fixed deposits with partial withdrawal facilities offer a middle ground, combining safety with slightly higher interest rates.
Personally, I keep about 70% of my fund in a high-interest savings account for immediate access and 30% in a liquid mutual fund to earn better returns without sacrificing too much liquidity.
Knowing When to Use (and Not Use) Your Emergency Fund
Discipline is crucial when it comes to using your emergency fund. Genuine emergencies include job loss, major health expenses, urgent home or car repairs, or emergency travel.
Non-emergencies—like festival shopping, gifting, stock investments, or planned vacations—should never touch this money. Think of your emergency fund as a parachute; you wouldn’t use it just for fun on a sunny day.
My Personal Journey: Building an Emergency Fund on a Low Income
When I began richerthanyesterday.com, my income was modest, and saving ₹1,000 a month felt like a stretch. But I stuck to it, and within a year, I had ₹12,000 set aside—enough to cover my essential expenses for at least 15 days.
That small safety net gave me the courage to take calculated risks, including starting freelance work and eventually turning my blog into a full-time source of income. It was proof that you don’t need to be wealthy to start saving—you just need to be consistent.
Final Thoughts: Small Steps Lead to Big Security
Building an emergency fund from scratch in India is entirely possible, no matter your starting point. The process may feel slow at first, but every rupee you save is a step towards peace of mind and financial independence.
Start with ₹100 if that’s all you can manage. Increase it to ₹500, then ₹1,000 as your budget allows. The key is to keep going, no matter how small the progress seems.
And if you want more practical, no-nonsense financial advice tailored for the Indian context, you’ll always find it on richerthanyesterday.com. Your future self will thank you for starting today.
