Emergency Funds in 2025 How Much Should Young Indians Keep Aside

Neha and Vikram, two young and busy professionals, are lazing away on a Sunday afternoon. As they scroll through their phones, they find a news article discussing the importance of emergency funds in today's unpredictable economy. "What if we lose our jobs overnight, or an unwarranted medical expense comes up?" wonders Neha, restlessly shifting at this thought. Vikram nods in agreement, acknowledging that while they have some savings, they've never really considered how much should be set aside for emergencies.

This moment of reflection is all too common in 2025 amongst like-minded young financial planners who reflect on themselves. 

Understanding Emergency Fund

 An emergency fund is essentially a portion of what we earn. This amount of income is set away for unforeseen circumstances that may affect our finances in the future. Consider it a helmet for riding a bike or a seatbelt for driving a car. Wearing a helmet or a seatbelt is vital to avoid major injury. Similarly, the Emergency Fund safeguards you against financial harm.

Suppose you start investing with the aim of future objectives - saving for your child's education or a home purchase. In this event, you would need to sacrifice your future dreams in favour of addressing consistent financial emergencies like the pandemic. Counter to this, an emergency savings fund protects you against this issue, as it allows you to work through unforeseen expenses without jeopardising long-term goals. 

According to a survey called "India's Money Habits", only 25% of Indians have emergency cash for a rainy day, regardless of the situation. The survey also stated that 75% of Indians lack emergency money and might not be able to pay their EMIs in the event of an unexpected layoff. According to the report, one in three people do not have health insurance or an emergency fund. This is another noteworthy statistic that emphasises the need for an emergency fund: According to at least 29% of Indians, their pay is only good for 15 days at most!

How Much Should Youngsters Save?

Financial analysts want the young to save anything from three to six months of living expenses. Below are some of the ways you can save a portion of your income.

Calculate Monthly Expenses: The first step is to accurately assess monthly expenses. These expenses might be fixed expenses, such as rent and utilities, and variable costs, such as groceries and transportation. For instance, if a person had monthly expenditures of ₹25,000, he would be looking at an emergency fund of at least ₹75,000 and not more than one and a half lakh rupees.  

Account for Inflation: In India, inflation is a constantly varying phenomenon. Annual inflation adjustment is important here for an emergency fund. If their emergency fund grew by 4.8%, Neha and Vikram would need to regularly review it to ensure it maintains purchasing power. 

 Availability of Investment Options: Do not let the emergency fund sit idle; young Indians could channel investments that yield better-than-traditional savings account rates:

• Liquid Mutual Funds: They yield better returns than a traditional savings account, along with the benefit of quick access to one's funds.
• High-Yield Savings Accounts: Many banks offer a competitive interest rate on savings accounts that can, in turn, grow the emergency fund over time. 

 The Replenishment of the Fund: Whenever it is required to use the emergency fund if it is supposed to be used for unexpected medical expenses, the fund should be prioritised for restoration to ensure that the emergency fund will be available in case of emergencies. 

 Consistent deposits: It is important to spend some time habitually saving. By doing this, Neha and Vikram can set up automatic transfers to their emergency fund every month. For example, by sticking to a savings of ₹2,000 monthly, one accumulates ₹24,000 in a year.

Building a Secure Future

As Neha and Vikram finish their discussion,  they realise that an emergency fund isn't merely about saving; it accounts for their future against life's uncertainties. They choose a period and an amount to save, incorporating their lifestyle and expenses, and invest in a mix of products like liquid funds or high-yield savings accounts to build a solid safety net.

In 2025, financial literacy will be young Indians' best friend, emphasizing the importance of non-verbally dried-out savings for emergencies. A good plan, put in place today with hard, untiring action, can navigate tomorrow's natural uncertainties with utmost confidence and peace of mind. 

 -Marifur Rahaman & Sukalyan Halder

-Dayco India

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