Emergency fund: size it on what cannot stop, not on what you spend

The must-pay month has two parts. Committed outflows are the payments that punish a miss: EMIs, rent, insurance premiums, school fees, society maintenance, money sent to parents. An annual premium or fee counts as its monthly share, so a ₹24,000 term premium is ₹2,000 a month of committed outflow whether or not this is the month it falls due. The living floor is groceries, utilities, phone, transport and medicines at a careful level: lower than now, still not zero.

Everything else is discretionary: eating out, shopping, travel, subscriptions you would cancel, help you would pause. A SIP is not spending at all; it can be paused, which makes it the first line to halt rather than one the fund must carry. The three households used throughout, all illustrative:

For two salaries, the question is what the household would be short if one salary stopped. A's must-pay month is ₹88,690. If the ₹92,000 salary stops, the ₹68,000 one leaves a gap of ₹20,690 a month, and four months of that is ₹82,760. If the smaller salary stops, the larger one covers the must-pay month with ₹3,310 to spare and there is no gap. The four months hold only if the two jobs are independent. A couple at one company, or in one industry during layoffs, is one income with two payslips and should size on the whole must-pay month: for A, ₹5,32,140.

For one salary, six months of the whole must-pay month is the working number. For irregular income, nine: a lost client comes with no notice period, and the fund has a second job, carrying the lean months the business produces even when nothing goes wrong.

A's fund is set by the lump, not the job. Its income-stop cover is ₹82,760, but a ₹1,50,000 reserve for a hospital deposit or a repair arriving while both salaries continue is ₹67,240 larger, and covers the job loss with room. The rule would have told this couple to hold ₹7,36,140, ₹5,86,140 more, most of it idle instead of in the SIP.

B lands close to the rule because almost all of B's spending is already committed; the ₹1,32,000 difference is six months of discretionary spending B would stop anyway. C is where the rule fails dangerously. It says ₹5,07,648; the must-pay method says ₹6,47,688, which is ₹1,40,040 more.

Take the last three months of bank and card statements, or the last twelve if income is irregular, and fill in five lines in order. For a self-employed household the fourth line needs one extra step: find the worst run of consecutive months in which receipts fell short of the must-pay month. Here is C's, from its last twelve months.

Household B's ₹5,45,346, split by when it would be spent. All in savings, it earns ₹16,360 a year. The tiers earn ₹33,630, which is ₹17,269 more, with the first three months still reachable within two working days. The price is a penalty if tier 3 has to be broken. At an illustrative 6 percent for the four months actually held, less a 1 point penalty, breaking the ₹2,72,673 tier after four months earns ₹4,545 instead of ₹6,362: ₹1,818, paid only in month four of a real emergency.

Deposit insurance is per bank, not per account. DICGC's FAQ at https://www.dicgc.org.in/faqs states that each depositor is insured up to ₹5,00,000 for principal and interest held in the same right and capacity at one bank, and that deposits at different banks are insured separately. B's fund is ₹45,346 over that limit at a single bank, so tier 3 sits at another bank: ₹2,72,673 at each. A liquid fund is not a deposit and is not covered; it is usually redeemed by the next working day and can in principle fall in value.

Suppose B's salary stops for four months, two short of the six the fund was sized for, and there is no fund. The must-pay month of ₹90,891 goes on a card. At an illustrative 3.5 percent a month plus 18 percent GST on the interest, the balance grows at 4.13 percent a month, compounding, and nothing is interest-free once a balance is carried. This assumes a limit above ₹4 lakh, which many cards do not have; hitting the limit in month three is worse.

If B borrows the same ₹3,63,564 as a personal loan during a notice period, while salary still arrives, at an illustrative 14 percent over 36 months with a 2 percent processing fee, the cost falls to ₹92,343: ₹83,763 of interest and ₹8,580 of fee with GST. That is ₹1,43,257 less than the card. It is also a ₹12,426 EMI for three years on top of the ₹43,391 home loan EMI, which lifts B's committed outflow to 58.7 percent of take-home and takes the whole ₹12,109 a month B was able to save, and ₹317 more. For three years nothing rebuilds the fund.

Months to target at a fixed monthly transfer, with the balance earning an illustrative 5 percent blended as the tiers fill. The monthly amounts start from each household's actual surplus: A has ₹37,310 left after spending, of which ₹25,000 already goes to a SIP; B has ₹12,109; C's receipts average ₹15,392 more than its total spending, in a year of wide swings.

The committed half of the must-pay month is the half people estimate worst, because annual premiums, fees and small mandates are easy to forget. On Pro, Unyfy's Fixed Expenses screen supplies it from your own transactions: it predicts what the coming month is already committed to, the EMIs, SIPs, rent, bills, subscriptions and card bill it has seen leave your accounts, with what is paid and what is left so far this month. Its Subscriptions list shows each recurring subscription with its amount and whether it is due or paid, and the ones you no longer use are worth cancelling before you size anything, since each one inflates the fund you have to build.

What you see is next month's committed outflows, each named from the lender or merchant on the debit, with its amount. It is read from bank and card transaction emails and, on Android, transactional SMS, with no manual entry. It never asks for your bank password or UPI PIN, and every payment is one you authorise.

The living floor, the months of cover and where the money sits are your decisions; add them to the committed half and the fund is sized. Install Unyfy on Android, or use the web app at app.unyfy.co.in on an iPhone.