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An emergency fund contains a sufficient amount of money which is easily accessible. It is for unplanned events such as: > loss of job > you want to quit and start your own firm > sudden medical expense for yourself/partner/kid/parent This implies that if my stable, secure, fixed salary suddenly stops tomorrow, I don't need to panic. I can look for a new job without worrying about rent. If a sudden medical expense comes up, I do not need to borrow from friends/family or the bank. But how much money is sufficient for emergencies?Use the below formula to find the value of your emergency fund. Emergency Fund = (No. of months) x (Monthly "Needs")

This means that if you need a bare minimum of 30,000/month, savings of 90,000 will secure you for 3 months. 

Let's break this down further:

A. How many months is sufficient?

The number of months you choose, will imply the level of security you are planning for:

3 - Bare Minimum

6 - Ideal (recommended)

12 - You the star!

B. How to calculate value of my "Needs"?

All expenses can be broadly classified into three categories:

  1. Needs These are your non-negotiables - Rent, electricity, phone & Wi-Fi, groceries etc. Sure, you may stop buying avocados if you lost your job, but you still need to eat right?!

  2. Wants These are expenses which define your lifestyle. Are you someone who does a daily coffee run to Starbucks? Do you shop for clothes/shoes/make-up regularly?

  3. Investments This is where you are adulting and putting money away for a rainy day.

Now that we have understood the basics, let's begin the number game! The next post has a free excel template which will help you find the exact value of your emergency fund.

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