Many people in India dream of owning a home. But rising property prices and high EMIs make it difficult, especially for those earning below Rs. 1 lakh per month. If your salary is Rs. 70,000 or Rs. 80,000 per month and you want to buy a home, first ask yourself—what will happen if you lose your job or face a medical emergency? That’s why having an emergency fund becomes very important before you take any home loan.
Let’s understand how much emergency fund you need, especially if you plan to buy a house while earning less than Rs. 1 lakh per month.
Why Emergency Fund Matters Before Buying a Home
Life is full of surprises. Sometimes, these surprises come with heavy expenses—job loss, health issues, car or home repairs, or family needs. If you have a home loan and a fixed EMI to pay every month, any financial emergency can put extra pressure on you. Missing an EMI can affect your credit score and peace of mind.
So, before you commit to long-term home loan payments, first secure your base. And that starts with a strong emergency fund.
How Much Emergency Fund You Should Keep Based on Salary
Financial planners usually suggest that you should save at least 6 months of your monthly salary as an emergency fund. But if you are planning to buy a house, you should try to save 9 to 12 months of your salary.
Let’s take some simple examples:
| Monthly Salary | Minimum Emergency Fund (6 Months) | For Home Buyers (9-12 Months) |
| Rs. 70,000 | Rs. 4.2 lakh | Rs. 6.3 to Rs. 8.4 lakh |
| Rs. 80,000 | Rs. 4.8 lakh | Rs. 7.2 to Rs. 9.6 lakh |
| Rs. 90,000 | Rs. 5.4 lakh | Rs. 8.1 to Rs. 10.8 lakh |
If your job is not stable, or you work in a private company without job security, keep 12 months of emergency fund. It gives you breathing space in tough times.
What Should Be Included in an Emergency Fund?
An emergency fund is not just about saving money. It should be:
- Easily accessible: Keep it in a savings account or liquid mutual fund.
- Safe from market risks: Don’t invest in risky shares or long-term FDs for emergency money.
- Separate from your other savings: Don’t mix this with your house down payment or vacation funds.
- Sufficient to cover basic needs: Rent, food, EMI, electricity, child’s education, health, etc.
Let’s say you need Rs. 30,000 monthly for your expenses, including EMI. Then your emergency fund should be Rs. 2.7 to Rs. 3.6 lakh at minimum (for 9–12 months).
Simple Ways to Build an Emergency Fund Slowly and Steadily
If you start saving small amounts every month, you can build your emergency fund easily in 1–2 years. Here are some smart ways to do that:
1. Start a Monthly SIP
Open a Systematic Investment Plan (SIP) in a low-risk liquid fund. Even a SIP of Rs. 5,000 per month can grow to Rs. 60,000 in one year.
2. Auto-Save from Salary
Set up an automatic transfer of 10%–20% of your salary to a separate savings account the day you get paid.
For example:
- Rs. 70,000 salary → Save Rs. 7,000 to Rs. 14,000 monthly
- In 12 months → You’ll have Rs. 84,000 to Rs. 1.68 lakh
3. Use Bonuses and Extra Income
Did you get a bonus, gift, or freelance income? Don’t spend it all. Directly transfer it to your emergency fund.
4. Control Your Lifestyle Expenses
Cut down on unnecessary monthly expenses—eating out, subscriptions, luxury shopping, etc. Use that money to grow your fund.
Where to Keep an Emergency Fund for Quick Access
Your emergency fund must be liquid, meaning you can withdraw it quickly when needed. Ideal options include:
- Savings Bank Account: Easy access, no lock-in, but low interest (2.5–4%).
- Liquid Mutual Funds: Higher return (4–6%), safe, can withdraw within 24 hours.
- Sweep-in Fixed Deposits: Automatically convert to FD when balance increases; breakable when needed.
Don’t invest your emergency fund in stocks, equity mutual funds, or long-term FDs with lock-ins. Safety and liquidity matter more than high returns here.
What to Avoid When Building Emergency Fund
- Don’t use emergency fund to buy gadgets or go on vacation.
- Don’t park it in risky investments expecting higher returns.
- Don’t depend on credit cards or personal loans during emergency.
- Don’t delay creating it just because you are young or healthy.
The earlier you start building, the better protected you’ll be.
If You Have Home Loan, Emergency Fund Becomes Even More Important
Once you take a home loan, your monthly EMI becomes a non-negotiable payment. Whether or not you have income, the bank will expect timely repayment. Missing even one EMI will bring stress and impact your CIBIL score.
That’s why, before finalising your home loan or starting house hunting, make sure your emergency fund is ready. Ideally, it should cover:
- Your household expenses for 6–9 months
- Home loan EMI for 6–9 months
Let’s say your EMI is Rs. 20,000 and household expense is Rs. 30,000. You’ll need Rs. 50,000 x 9 months = Rs. 4.5 lakh emergency fund.
Final Thoughts
Buying a home is a dream, but dreams need planning. Don’t rush into it just because property prices are rising or banks are giving easy loans. Make sure your financial base is strong.
Start with building an emergency fund. It gives you the courage to face unexpected situations and reduces the financial stress of owning a house.
Disclaimer: This article is for general financial awareness. Please consult a certified financial advisor before making major investment or loan decisions.
Source: CNBC Awaaz, Mint
