Have you ever been told to save before you start investing? Yes, of course. But did anybody give you a clear number? Three months' rent? Or six months' salary? There isn't a correct answer, but it will depend on the stability of your job, the number of dependents, and whether you panic when markets drop. Let's get into details.

Calculate your monthly expenses, not your salary

Add your rent payments, grocery bills, EMIs, insurance premiums, utilities, etc. Don't include the discretionary expenses like dine-outs or subscription services. This is the bare minimum of your expenses that you need to survive, and it is usually much lower than the figures many people think of.

Write down the number in the place where you will see it next time. Many people run this calculation once and forget the number. And they guess what their emergency number should be going forward. 

Also, it is a good idea to recalculate it from time to time due to rising rent or the addition of new EMIs to your list, and the number you calculated a couple of years ago might become irrelevant.

The three-to-six-month rule, and when to break it

Three months of essential expenses would be a solid baseline for salaried individuals with stable jobs. For freelancers, business owners, and other individuals with unstable income, the number should be at least 6 months. A single earner, for example, will need to maintain a larger emergency buffer than two earners living together.

There is no single formula here. For people with recession-proof jobs, such as government employees, it is acceptable to have a smaller emergency fund. For those with unstable income sources, such as commission-based salespeople, the opposite should be true. 

If you work in an industry where you have some seasonal declines in activity or have changed jobs frequently in the last few years, increase the emergency fund above the average recommendation.

Where should you keep this money?

Not in the stock market or in equity-related mutual funds. Emergency funds must be boring and easy to access. Think of savings accounts, liquid mutual funds, and short-term fixed deposits that allow you to withdraw money without penalties. Your goal is to have the money ready whenever you need it, not three days after.

Don't try to earn with this specific part of the funds. This is what emergency funds are for – to be accessible. Liquidating mutual funds or fixed deposits takes some time, and usually you need to pay penalties. 

So, having a savings account for the money that is ready to be spent and liquid mutual funds for the other part may be the right compromise for people who still want their emergency fund to earn something.

Should I wait until the entire emergency buffer is accumulated to start SIPs?

No, of course. Waiting six months or a year to fill the emergency fund quota and then begin investing is not ideal because it misses opportunities to benefit from compound interest growth in an SIP.

Here is the practical approach – split your surplus. Send one part of the money to your emergency fund and another part (it doesn't have to be very big, even if it's ?1,000 or ?2,000 per month) to SIPs. When your buffer is ready, you may start to increase your investments.

Running calculations on online SIP calculators will show you how small contributions can grow over time, and this would make you more confident in starting SIPs even before you have enough money for your emergency fund.

How to start without overcomplicating?

There is no need to be a finance professional to start investing. The best investing apps for beginners have a friendly interface and allow you to set up SIPs in just a few clicks. Many allow you to open SIPs with an intuitive user interface designed for beginners.

Conclusion

A one-size-fits-all number does not exist. One should have savings for at least three to six months’ worth of expenses. Also, that should be kept liquid without using the hunt for that perfect amount as an excuse to not invest at all.