Why emergency funds must be reviewed regularly An emergency fund is a cash cushion for unexpected things such as loss of job, illness, or unforeseen expenditures. Financial advisors have recommended maintaining three to six months' worth of expenses in an emergency fund in the past. As inflation keeps increasing the cost of living, what was enough money a couple of years ago may no longer be adequate to meet the same expenditure today. You have to review your emergency fund periodically to make sure that it is adequate.
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How inflation affects your savings Inflation reduces the purchasing power of money in the long run, i.e., the same sum of money will purchase smaller things and services in the future. In 2025, increased prices of essentials like healthcare, food, and fuel imply that an earlier emergency corpus may not suffice today. If you had put ₹3 lakh three years ago, increased inflation would imply that you would require at least ₹3.5-4 lakh for the same amount of security today.
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How to get the right amount To determine how much you should have, start with a total of your monthly expenditures, i.e., rent, EMIs, bills, and other expenses. Double this for half a year's expense payment. Add 5–7 percent a year to account for inflation. If you have dependents or a non-stable income, attempt to create a stronger corpus of 9–12 months of expense for added security.
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Where to put your emergency fund The emergency fund must be kept in liquid and easily withdrawable forms and not in long-term plans. Fixed deposits with early withdrawal facilities, liquid mutual funds, or high-yield deposit accounts are suitable alternatives. These schemes are liquid but provide a little higher return than a regular savings account. Never put the money in schemes where withdrawal is difficult during an emergency.
Redirecting the fund to life changes Drastic changes in life such as marriage, having a baby, or buying a home can actually increase your monthly spending. The instance your financial responsibilities increase, you need to reassess and restore the emergency fund. This will ensure the fund covers the needs of your family regardless of the lifestyle shift and responsibilities. Remembering to review the fund every year will guarantee its adequacy.
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Remaining prepared for uncertainty Inflation reminds you of not making your emergency fund a one-time activity. It is periodically reviewed and reallocated for the fund to remain in value and, when most needed, serve its purpose. It keeps the fund current and invested in low-risk liquid instruments so that you can move forward with confidence in case of unforeseen situations without sacrificing your long-term financial objectives.
