The emergency fund, how much is enough and where to keep it

What you'll have at the end

One figure for your full fund, a smaller figure for its first stage that you reach within months, and a specific place to keep it.

Step one: size it from expenses, not salary

The common mistake is to size the fund as "three salaries". The right way is from the above-the-line figure on your sheet from lesson one, the expenses that don't stop when income stops: rent, basic food, bills, transport, medicine, school. If they add up to 8,000 AED, your full fund is 24,000 to 48,000, three to six months. A government employee on a fixed salary can sit at the lower end; anyone freelancing or running a business needs the upper.

Step two: build it in three stages

The full figure frightens people and gets postponed. Split it:

1. Stage one, 2,000 AED or the equivalent of two weeks of unavoidable expenses. Reached in a month or two from the salary share and windfalls. This covers a tyre and a doctor's visit.
2. Stage two, one full month of unavoidable expenses. Covers a late salary.
3. Stage three, three months, then six. Covers losing a job.

Anyone with instalments builds stage one only while repaying, with the 10 percent of the surplus we set in lesson 3.1, and finishes the rest after the close. Anyone without instalments sends the whole savings share to the fund until stage two is complete, then splits it.

Step three: keep it where your card can't see it

A fund that lives in the same account you shop from gets spent in month three on something that wasn't an emergency. The rule: a separate account with no card in your wallet, or cash with someone at home you trust. Stages one and two stay in cash or in an account you can draw from the same day, because an emergency doesn't wait. Beyond that, the extra three months can be a little gold that sells in two days; it holds its value and doesn't melt with inflation. Lesson 5.2 goes into it.

Step four: write down what counts as an emergency

On the same sheet, write: an emergency is what threatens housing, health, income or food. The car that gets you to work breaking down is an emergency. A deal on a new phone isn't. A relative's wedding is a season, not an emergency, and it gets its own lesson in two lessons' time. Whoever writes the list before the need doesn't argue with themselves at the moment of need.

Step five: refill before anything else

Drew from the fund? Next month the whole savings share goes back into it until it's at its level, and every other goal pauses. A fund that gets drawn from and never refilled is a memory after a year.

Where most people trip

At stage one itself, because it looks small so they never start it. Two thousand looks like a figure that doesn't deserve its own account. It's the figure that separates a car repair paid from the pocket from a car repair that becomes eight months of instalments.

Tonight's exercise

Add up what's above the line on your sheet. Multiply by three and write the result: that's your fund. Under it, write the stage-one figure and the date you'll reach it. Then open the banking app and create a sub-account named "don't touch".