An emergency fund in months, worked through
The target
Essential spending is what has to be paid whatever the income: rent or EMI, food, utilities, insurance premiums, school fees. On ₹50,000 a month:
- The target: ₹50,000 × 6 months = ₹3,00,000.
- Set aside today: ₹1,20,000, which is 40% of the target.
- The runway: ₹1,20,000 ÷ ₹50,000 = 2.4 months of essential spending with no income at all.
- Left to set aside: ₹3,00,000 − ₹1,20,000 = ₹1,80,000, which at ₹15,000 a month takes ₹1,80,000 ÷ ₹15,000 = 12 months. A part-month is counted up, as a savings goal counts, because the fund is full in the month the last rupee lands.
3, 6, 9 or 12 months
The same ₹50,000 a month and ₹1,20,000 set aside, adding ₹15,000 a month, for other counts:
| Months covered | Target | Set aside today | Full in |
|---|---|---|---|
| 3 | ₹1,50,000 | 80% | 2 months |
| 6 | ₹3,00,000 | 40% | 12 months |
| 9 | ₹4,50,000 | 26.7% | 22 months |
| 12 | ₹6,00,000 | 20% | 32 months |
If spending is different
The fund and the target both move with spending: the same ₹1,20,000 covers more months of a lower spend, and the target is a different sum.
| Essential spending a month | Runway on ₹1,20,000 | Target |
|---|---|---|
| ₹35,000 | 3.4 months | ₹2,10,000 |
| ₹50,000 | 2.4 months | ₹3,00,000 |
| ₹65,000 | 1.8 months | ₹3,90,000 |
If more or less is set aside each month
The 6-month target of ₹3,00,000, with ₹1,20,000 already set aside:
| Set aside a month | Full in |
|---|---|
| ₹5,000 | 36 months |
| ₹10,000 | 18 months |
| ₹15,000 | 12 months |
| ₹25,000 | 8 months |
When the largest income stops
In a household with two incomes, ₹80,000 and ₹40,000 a month, the runway is not the only question: what the other income covers is. If the larger income stops, ₹40,000 a month remains against ₹50,000 of essential spending, which leaves ₹10,000 a month to be paid from the fund, so the fund pays them for 12 months rather than 2.4. With one income of ₹80,000 and no other, it stops everything: the whole ₹50,000 a month comes from the fund, which is the 2.4 months above.
Prices move the target
A target set today is a sum in today's rupees. At 6% inflation, ₹50,000 a month of essential spending is ₹66,911 a month in 5 years, and 6 months of that is ₹4,01,468, not ₹3,00,000. A fund that stays at ₹3,00,000 for 5 years covers 4.5 months of that, not 6.
What these figures assume
- Essential spending that is known and steady. The runway divides by one month's figure.
- The fund is not invested for growth. It is money to be had at once, so no return is added.
- A fixed amount set aside each month, from the month after today, with no withdrawal.
How Pocket works it out
The figures on this page are Pocket's own, from its planning engine when the page was built: the target, the progress and the months to full from the same code as the Goals page's emergency-fund card, and the runway from the same code as the Protection page. There the runway is your liquid savings over your average month's spending, the last three finished months or the figure typed in Settings, and the Goals page's card shows what is set aside against its target and, at what is added each month, the month it is full.
Questions
How many months should an emergency fund cover?
Pocket's target is 6 months of essential spending, which on ₹50,000 a month is ₹3,00,000. Other counts are common, and the table above shows 3, 9 and 12 months; the count a household uses depends on how steady its income is and how many earn.
What counts as the fund?
Money that can be had at once and does not move in value: savings and bank accounts, cash and liquid funds. Where Pocket holds your accounts, the fund is what is in the accounts it counts as cash and bank, not a figure typed in.
What is the runway?
The months the fund pays your essential spending with no income: ₹1,20,000 ÷ ₹50,000 = 2.4 months.
Sources
- Pocket's planning engine: the emergency-fund target (months of essential spending), the savings tracker (progress and months to full) and the protection runway (liquid savings over essential spending)
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