Remember when people said 3 to 6 months of expenses was enough for an emergency fund? I think that advice is outdated. The job market has changed. Layoffs are common. Medical costs are insane. If you lose your income or face a health crisis, you need more runway than that.
Here is what I would do. If you are in a dual income household, aim for 6 months of expenses. If you are the sole earner or a gig worker with irregular income, go for 9 to 12 months. Yes, that sounds like a lot. But trust me, when things go wrong, you will be glad you had it.
Now, where do you park this money? This is where most people mess up. They leave it all in a regular savings account earning 3% or so. That is a waste. Your emergency fund should work a little harder while still being easy to access when you need it.
I like a tiered approach. Put about 30% in something you can tap instantly. A high-yield savings account or a sweep-in FD works. You need cash for true emergencies, like a hospital bill due tomorrow or a flight home for a family crisis. The rest, about 70%, can sit in liquid mutual funds. They give you 6.5% to 7% returns, and you can redeem within a day or two. That is fast enough for most situations. The gap between 3% and 7% might not sound huge, but over a few years on a decent corpus, it adds up. Do not let your emergency fund sit idle.
Why does the size matter more now? Jobs are less stable. Companies cut roles without warning. If you are in tech or any sector that has seen layoffs, you know what I mean. And even if you find a new job quickly, it might take a month or two for the first paycheck. Add rent, EMIs, school fees, and you need a buffer. Medical costs are another story. A serious illness can wipe out savings in weeks. Health insurance helps, but there are deductibles, room rent limits, and treatments that are not fully covered. An emergency fund gives you breathing room.
Start small if you have to. Build one month, then two, then three. Keep going until you hit your target. Automate a monthly transfer from your salary account to your emergency fund. Treat it like a non-negotiable expense. And once it is full, leave it alone. This is not for vacations or a new phone. It is for real emergencies. Your future self will sleep better knowing it is there.