How much emergency cash is enough — and where to keep it

An emergency fund is insurance you self-underwrite. Its purpose is narrow: to keep the essential bills paid during an income shock without borrowing at short notice, when borrowing is most expensive and least available.

Start from fixed costs, not income

The common advice to hold three to six months of salary confuses the input with the requirement. What a shock actually threatens is the non-negotiable column: housing, utilities, food, transport to work, insurance premiums, minimum debt payments and childcare. Total that column and you have your monthly survival figure — usually well below take-home pay.

• Stable salaried income, dual earners: the lower end of the range is defensible.
• Single earner, commission-based or freelance income: extend the runway.
• Notice periods and statutory redundancy pay effectively lengthen your cover.
• Health insurance tied to employment shortens it, because a job loss adds a cost.

Where it should sit

Accessibility matters more than yield. Money needed inside 24 hours does not belong in an investment account, a fixed-term deposit or anything that can fall in value on the day you need it. An instant-access savings account at a deposit-protected institution is the plain answer; a money market fund is not deposit-insured and should be understood as an investment.

Rebuild it deliberately

A fund that is spent has done its job. The failure mode is not using it — it is failing to restore it, so the next shock lands on a credit card. Treat replenishment as a fixed cost until the balance is back.