---
title: 'What is an Emergency Fund? | How to build it? | Personal Finance for Beginners Ep - 1'
source: 'https://youtube.com/watch?v=vO2KGm8NM8E'
video_id: 'vO2KGm8NM8E'
date: 2026-06-30
duration_sec: 470
---

# What is an Emergency Fund? | How to build it? | Personal Finance for Beginners Ep - 1

> Source: [What is an Emergency Fund? | How to build it? | Personal Finance for Beginners Ep - 1](https://youtube.com/watch?v=vO2KGm8NM8E)

## Summary

This video, part of a personal finance series for beginners hosted by Karthik Ralupa, stresses the critical need to establish an emergency fund before engaging in trading or investing. It covers why an emergency fund is essential, how to determine the right amount for your family, and how to build and preserve it using low-volatility financial products.

### Key Points

- **Start with Personal Finance** [00:00] — The speaker emphasizes that sorting out personal finance is the foundational step before any trading or investing, as proceeding without it starts your financial journey on the wrong note.
- **The First Step: Emergency Fund** [01:12] — The very first step in personal finance is saving for emergencies. The speaker shares a personal story from 2020 about having to spend a lot on IT upgrades and then on parents' COVID treatment, highlighting the unpredictability of emergencies.
- **Purpose of Emergency Fund** [02:47] — The fund's purpose is to handle emergencies without scrambling for funds last minute, preventing additional stress on top of the emergency.
- **Estimating the Fund Size** [03:27] — The speaker disagrees with the common '6 months of expenses' rule, advising instead to sit with family and determine a number that gives peace of mind. For discussion, they assume 10 months or about 5 lakh rupees.
- **Building the Fund** [04:07] — Two approaches: save little by little monthly, or allocate a lump sum. The goal is to hit the target in a few months.
- **Common Mistake – Volatility** [04:47] — A major mistake is investing the emergency fund in stocks, equity mutual funds, or any volatile asset. This introduces risk and defeats the purpose of having the money available fully when needed.
- **Recommended Investment Vehicles** [05:17] — Low-volatility vehicles are recommended: simple fixed deposits (FDs), short‑term bond funds, or liquid funds. The key is quick access and capital protection. The speaker uses a mix of classic FD and an arbitrage fund.
- **Dealing with Settlement Delays** [06:10] — Liquid funds take T+1 day to settle; for immediate needs, the speaker suggests using a credit card's free grace period (≈25 days) and repaying when the fund settles.
- **Rebuilding After Use** [07:00] — A common mistake is spending the emergency fund on non‑emergencies (e.g., a new iPhone, a European holiday). After using any part of it, the fund must be rebuilt.

### Conclusion

Building an emergency fund before any investing is the first and most crucial step for a beginner's personal finance. Once built, preserve it in low‑risk, quickly accessible instruments, and always rebuild it after any use for genuine emergencies only.

## Transcript

We spend a lot of time educating people on various topics related to stock markets. Be it simple stock investing or understanding complex derivative products. But the underlying assumption here is that you have your personal finance sorted out,
even before you get into trading or investing in the markets. If your personal finance situation is not sorted, then I am afraid you are starting your financial journey on the wrong note. And it's time to fix that. Hi, this is Karthik Ralupa, and in the short video series, I will be talking to you about personal finance
and the best practices that you need to have in place to start your personal finance journey. I would suggest you watch this video series as a very first step in your financial journey. By the way, many people ask me if we have a finance course for beginners without really specifying what they mean by a finance course.
But my guess is people are looking for a personal finance Kickstarter course. If you are one of them looking for such a finance course, then I would suggest you watch these short videos.
In this video, I will be talking to you about the very first step you need to take in your personal finance journey. That is saving money for an emergency situation. Let me share a personal story with you. It was the year 2020, and I guess we all know that it was a horrible year.
Work from home was a norm, so was cooling from home. Suddenly, I had to upgrade the IT infrastructure in the house. I had to buy two laptops, a printer, a better router and a better broadband connection.
If you remember, laptops were not easily available in 2020 because of the supply chain and COVID constraints. Whatever was available was available at the premium. We had no option but to shell out extra money to purchase these occupants.
A few weeks later, both my parents contracted COVID. We were in the first wave of COVID and there was quite a bit of panic around. Finding a hospital bed was nearly impossible. But we got lucky, somehow found a hospital bed for both my parents.
But the treatment costs were exorbitant, it was a few likes per head. And I wasn't even sure if my insurance would cover for COVID treatment. The reason why I'm sharing this with you all is to highlight the fact that within a few weeks
all of a sudden I was faced with a situation where I had to spend a lot of money. I'm sure you two would have faced such a situation in life. Emergencies can come unannounced and when they do, it can be financially draining.
While the emergency and the nature of emergency is not in our control, what is in our control is our preparedness to face such an emergency situation. Preparedness in terms of having an emergency coppers.
Luckily, I was able to manage the situation because I had an emergency coppers in place. The purpose of an emergency coppers or an emergency fund is to help you deal with the emergency and not let you scramble for funds at the last minute.
Imagine in an emergency situation you're already under significant stress because of the circumstance you are in. If you don't have the money to deal with the situation, then that will be an added additional stress.
I hope by now I've convinced you enough as to why you need to have an emergency fund. Let us talk about how to build an emergency coppers and preserve the same. The very first step is to estimate the quantum of coppers you would need as an emergency fund.
Some experts say that you need at least six months of expenses dashed away as an emergency coppers. Personally, I don't subscribe to this thought. Each family is different, each family's requirements are different. What would work for your family may not work for my family.
Given this, it is best to sit with your family with your loved ones and figure out what would work as an emergency coppers for your family. It could be six months, ten months or even 15 months of expenses.
There is no right or wrong number here. The right number is that number that gives you and your family peace of mind and lets you sleep well at night. For the sake of this discussion, let's assume that number is ten months expenses
or maybe about five lakhs in rupee terms. Now that you've identified what is the coppers requirement, the next step is to figure out how you can accumulate this coppers. The most common approach is to save little by little every month
till you hit the targeted emergency coppers number. Or if you have a large coppers, it makes sense to first carve out the emergency coppers and park it separately. If you take this approach in a few months, you can build your first emergency coppers.
Now once you've accumulated the coppers, the next step is to figure out how to park those funds. When it comes to maintaining emergency funds, one of the most common mistakes that people do is that they invest this fund either in a stock
or a portfolio of stock or even an equity mutual fund. This is one of the silliest financial mistakes that you can do. Remember, the reason why you've saved for an emergency fund is that it is available to you in full when you need it.
Investing your emergency money in stocks or a equity mutual fund means that you're inducing volatility in your funds. And this can be a fatal mistake in times of emergency. I would suggest you invest your emergency funds in financial products that have low volatility.
A simple fixed deposit will do the trick. Alternatively, you can even consider short term bond funds or even a liquid fund. The idea with emergency fund is to have quick access to the funds and also have full capital protection.
A financial product that does not fit into this definition cannot be your vehicle to save your emergency coppers. Having said that, I've split my emergency coppers into two vehicles, a classic FD and an arbitrage fund.
Arbitrage funds invest in arbitrage opportunities and equity markets and by definition arbitrage positions are hedged and bring in very little risk. If you're not familiar with arbitrage funds,
then I would encourage you to read this chapter on varsity where I've explained arbitrage funds in detail. One last thing. Let's say you pick an instrument of your choice and park your emergency funds in it. Maybe a liquid fund.
When an emergency strikes, you need access to the funds immediately. But a liquid fund, although very liquid, still needs steep plus one day for full settlement. Which means that you may not have access to your funds immediately
and there could be a one or two day waiting period. How would you deal with this? Well, in such a situation, there is absolutely nothing wrong to use your credit card as a source of funds. Use it to pay for the emergency.
Utilize a 25 day free credit your bank could give you. And repay the credit card bill as soon as you receive money from your liquid funds. This is one of the smarter ways to use a credit card
and the free grace period that your bank could give you. I will talk more about credit cards in the third video in the series where I will be talking about borrowings. By the way, once you've tapped into your emergency coppers and utilized a portion of it,
do not forget to rebuild that coppers. Another common mistake that I've seen people do is with great difficulty they will build their emergency coppers but they end up utilizing this fund for lifestyle purposes. Maybe buying that new iPhone or maybe going on that fancy European holiday.
When you build an emergency coppers, you need to be completely aware of the reason why you've built this in the first place. Going on a European holiday is not an emergency situation. I hope you guys get started on your personal financial journey
by building an emergency coppers. If you guys have already built an emergency coppers, then do comment below and let me know what is your preferred financial instrument to save these funds. In the next video, I'll talk to you about the second building block
of personal financial journey that's insurance. I'll see you guys soon.