No emergency fund? CA explains why your first Rs 1 lakh can be more valuable than higher returns

An emergency fund may not look exciting compared with stocks or mutual funds, but it can become the most useful part of a financial plan when income suddenly stops. CA Nitin Kaushik has highlighted why building the first Rs 1 lakh of emergency savings can offer something higher returns cannot: financial breathing room. From handling unexpected expenses to avoiding costly debt and making better career decisions, liquidity can provide valuable options when circumstances change.

Why your first Rs 1 lakh matters

CA Nitin Kaushik took to X and shared that around 75% of Indians reportedly do not have an emergency fund, while roughly one in four cannot manage even a month without an active paycheck. He explained how this vulnerability can create a damaging financial chain. When income stops, savings can quickly disappear. The next step may be credit cards or personal loans, followed by expensive interest payments. Eventually, investments may have to be sold to meet immediate expenses.

According to Kaushik, an emergency fund is designed to interrupt this cycle. The first Rs 1 lakh is not merely money kept aside for bills. It creates what he describes as option value. Having cash available can give someone time to negotiate rather than accept the first job available, handle an unexpected medical expense without selling investments, take time to learn a new skill or even leave a toxic workplace without immediately facing financial desperation. In that sense, liquidity is not idle money. It is financial leverage, Kaushik said.

Save before you spend

Kaushik also argues that many people approach saving backwards. The typical pattern is salary arriving, expenses being paid, lifestyle spending increasing and whatever remains eventually being saved or invested. Instead, he recommends reversing the order:

Salary - automated savings - mandatory expenses - discretionary spending

The idea is to schedule the savings transfer on salary day. Once saving happens automatically, spending becomes the variable rather than savings being whatever happens to remain at the end of the month. This approach also reduces the need to depend entirely on willpower.

Use separate accounts for different purposes

Kaushik suggests creating boundaries between income, emergency savings and everyday spending. His suggested three-account structure is:

Account 1: Salary, bills and automated transfers
Account 2: Emergency reserve, preferably at a separate bank
Account 3: A fixed lifestyle allowance

Keeping the entire salary in one account can make the available balance feel like money that can be spent. Separating the emergency reserve creates a psychological and practical barrier against lifestyle inflation. The goal, according to Kaushik, is to create a system where financial discipline does not depend on making the right decision every day.

Emergency savings are not meant for maximum returns

Kaushik also makes an important distinction between an emergency fund and an investment portfolio. The primary purpose of emergency savings is liquidity and capital preservation, not maximum returns. Putting emergency money into equities can create a particularly bad sequence. A market downturn could happen at exactly the same time as an emergency. If the investor then needs cash, they may have to sell stocks at a loss, turning a temporary market decline into a permanent loss.

As Kaushik points out, a few percentage points of additional returns mean little if the money is unavailable when it is actually needed.

Build the first month, then aim for 3-6 months

Kaushik recommends starting with a buffer covering the first month of expenses and then gradually expanding the emergency fund to around three to six months, depending on an individual's circumstances and dependants. The right amount can vary from one household to another. Someone with dependants, irregular income or high fixed expenses may need a larger cushion than someone with fewer financial obligations.

The important part is to begin building the buffer rather than waiting until the ideal amount can be saved.

Financial risk is also about your income

Kaushik says financial diversification should not be limited to investments. There is another risk that often gets overlooked: income concentration. One employer may provide the salary. One industry may determine employability. One skill set may determine bargaining power.

A secondary skill or modest additional income stream does not necessarily have to replace a primary salary. Even if it covers basic expenses, it can reduce dependence on a single employer. This means financial diversification can involve both assets and income.

Reverse the traditional savings formula

Kaushik also challenges the familiar personal-finance equation:

Income − Expenses = Savings

Instead, he suggests a more resilient approach:

Income − Automated Savings = Spending

The difference is subtle but important. Rather than treating savings as whatever survives after spending, the system makes saving a priority from the beginning.


For someone starting from scratch, building the first Rs 1 lakh can therefore be less about chasing investment returns and more about creating financial flexibility. Once that initial buffer is established, it can gradually grow into a larger emergency reserve that protects investments, career choices and everyday financial stability.