It is recommended that one should keep aside at least 3- 4 months of salary for creating an emergency fund. One cannot build an emergency fund overnight. This has to be done gradually by setting aside or investing a particular amount every month. Having emergency money aside, needs to be a priority for every individual and you can even cut down your other investments to build this fund.
Always keep the following facts in mind when deciding on the actual amount for your emergency fund.
- The size of emergency money will depend on how secure your job is and how many earning members are there in a family.
- You will need to take into account EMIs and insurance premiums that need to be serviced regularly.
- Households that are paying huge EMIs experience considerable financial stress when income reduces. Their emergency fund has to be that much bigger.