7 proven strategies to build an emergency fund in 2025

In the face of ever escalating household debt and economic challenges, families in India are re-analysing their financial goals and objectives.

The focus has now shifted on building robust emergency funds with a renewed emphasis on planning things efficiently. Recent data underlines the significance of this financial preparedness.

According to a recent report by Motilal Oswal Financial Services, household debt in India has surged to 43.5% of GDP in the first half of FY25, up from 37.9% in FY23. This increase is attributed to a serious rise in non-housing personal loans, which now constitute 32.3% of GDP.

Further, household net financial savings (HHNFS) have shown a modest recovery, rising to 7.3% of GDP in H1FY25 from a 47-year low of 5.0% in FY23.

Financial experts and market veterans recommend that individuals should aim to save between three to six months worth of essential expenses. For example, a family with monthly expenditure of ₹50,000 should consider setting aside ₹1.5 lakhs to ₹3 lakhs as an emergency corpus.

Still, it is also crucial to acknowledge the fact that the exact amount of saving for emergency fund creation should be tailored to individual circumstances, upon proper consultation with a certified financial advisor.

Strategies to build your emergency fund:

• Start small and be consistent: You should initiate your savings with manageable amounts such as ₹2,000 to ₹5,000 on a monthly basis. Then go on to increase contributions gradually over time.
• Automate savings and plan: Efficient long term planning and automatic transfer of funds to a devoted savings account is crucial to ensure regular contributions without manual intervention.
• Utilising appropriate financial instruments: Do consider parking funds in high interest savings accounts, mutual funds, sweep-in fixed deposits upon proper discussion with your financial advisor. This will help you in making money work for you.
• Avoid risky investments: You should also stay away from investing your emergency funds in volatile assets such as penny stocks, volatile equities, which can fluctuate significantly in the short term.
• Review and adjust periodically: Life circumstances and situations evolve with time. That is why you should consistently review your emergency funds to ensure that it still aligns with your current and long-term financial needs and aspirations. Adjust the corpus accordingly as per life events such as job losses, job changes, medical needs etc.

Furthermore, complementing your emergency fund with a reasonable health insurance policy from a reputable company is also a prudent thing to consider.

As medical emergencies are a common cause of financial strain. Therefore, while formulating a new emergency fund you should take into consideration the following economic indicators as well:

• Household Debt: India's household debt has surged to 43.5% of GDP in H1FY25, raising concerns about financial stability. Therefore, formulate an emergency fund after thinking through the significance of debt or the high rates of interest that are charged if you don’t plan efficiently.
• Time to Build Emergency Fund: It takes approximately 15 months for an average Indian to build an emergency fund. This fund is generally equivalent to three times their monthly income.

Conclusion

Hence, in today’s volatile economic backdrop, building and sustaining an emergency fund is no longer optional. It is indispensable and crucially essential now.

That is why to meet these expectations, you should adopt a disciplined savings habit and make informed financial choices by starting small, staying consistent and prioritising basic financial resilience for a more secure economic future.

Disclaimer: This article is intended for informational purposes only and should not be construed as financial advice. Readers are advised to consult a certified financial advisor before making any financial decisions.