Emergency fund: how much you need and how to build it

The figure you always hear is "three to six months of expenses". It's a fine starting point, but it usually gets calculated wrong: it isn't three months of your salary, it's three months of your essential spending. That's a big difference.

Your essential spending is what you'd still be paying if your income stopped tomorrow: rent or mortgage, utilities, food, getting to work, insurance, loans you already have. It doesn't include holidays, eating out, or the subscriptions you'd cancel on day one.

An example with round numbers:

• Rent: 750 €
• Utilities and internet: 120 €
• Food: 350 €
• Transport: 60 €
• Insurance and loan payments: 170 €
• Essential total: 1,450 €

That person might spend 2,100 € a month in total, but their fund is calculated on 1,450 €. Three months is 4,350 €, not 6,300 €. The number stops being frightening once you work it out properly.

If you're not sure what your real floor is, it comes from looking at your last two or three months of transactions and separating what's fixed from what's optional. That's exactly the work behind tracking your expenses, which is why one leads to the other.

Three to six months is a range, not a rule. What moves your number within that range is how long it would take you to replace your income and how many people depend on you.

• Permanent contract, no dependants: three months serves you well. Your risk of losing all income at once is low.
• Fixed-term contract, or a high-turnover sector: aim for four or five.
• Freelance or variable income: six months, and count your tax bills too. If you invoice on 60 or 90 day terms, your fund cushions you every month, not just in emergencies.
• Single income household, or with children: raise the number. Here the fund isn't comfort, it's the safety net.
• Two stable incomes at home: you can go lower, because both are unlikely to stop at once.

The goal isn't to hit some ideal figure. It's that an unexpected expense doesn't force you to borrow.

If your income comes in bursts, the mechanics change quite a bit, and we cover that separately in how to save with irregular income.

Three conditions, and all three matter:

1. 1. Available within 24 to 48 hours. If it takes a week to get at it, it isn't there on the day you need it.
2. 2. No risk of losing value. This money isn't for investing. If the month you lose your job happens to coincide with a market drop, you'd be selling at exactly the wrong moment.
3. 3. Separate from your everyday account. If you see it next to the rest, you'll spend it. You don't need another bank: another account with no card attached is enough.

An interest-bearing account or an instant-access deposit does all three. What doesn't belong here is anything with a lock-in period, a penalty for early withdrawal, or a value that moves.

This is where most people give up: they see 4,000 € and stop. The way to avoid that is to break it into stages and treat each one as finished business.

• Stage 1 — 500 €. Covers most small shocks: a breakdown, an excess, an emergency ticket. With just this you stop reaching for the credit card for the unexpected.
• Stage 2 — one month of expenses. The psychological cushion. From here, a late paycheque stops being a problem.
• Stage 3 — three months. The real target for most people.
• Stage 4 — up to six. Only if your situation calls for it, per point 2.

At 200 € a month, stage one takes two and a half months and stage three a little under two years. At 350 € a month, stage three lands within a year. The figure doesn't need to be big: it needs to not stop.

If you're struggling to find that 200 €, the 50/30/20 rule is a decent frame for looking at it, though the first money usually comes from cutting two or three specific things rather than rearranging everything.

What if I have debt?

If you're carrying expensive debt — credit cards, consumer finance — build stage 1 first and then attack the debt. Saving at 2% while paying 20% doesn't add up. But going after debt with no cushion at all doesn't work either: the first thing that goes wrong puts you back on the card and you never get out. We go through the order in how to get out of debt.

It's worth writing the rule down before you need it, because in the moment everything feels like an emergency.

This is an emergency: losing income, a medical expense, a breakdown that stops you living or working normally, an unplanned trip for something serious in the family.

This isn't: an offer that expires, bringing your holiday forward, replacing a phone because it feels slow, an investment opportunity.

The test: if you could wait three months and save for it, it wasn't an emergency.

And when you do use it — that's what it's for — the next goal is to rebuild it. Spending it isn't a failure; the fund did exactly what it was supposed to do.

The fund works better when you treat it as what it is: a figure with a target and a date, not an account you check now and then.

In Neto you can set it up as a savings goal with its amount and its deadline, log the contributions and see the percentage completed. And because that goal adds to everything else, it shows up inside your net worth alongside your accounts, your investments and your debts, so you don't have one app for the cushion and another for everything else.

Without connecting your bank: you decide what you record and how often.

Work out your essential monthly spending, not your salary. Multiply it by the months your situation calls for — three for most people, six if your income is variable or several people depend on you. Keep it in a separate, instantly available account. And build it in stages, starting at 500 €, because the full target is discouraging and the first stage isn't.

Three months of covered expenses won't make you rich. They take away the part of money that keeps you awake.