Do Millennials And Gen Z Really Need An Emergency Fund?

Life in your 20s and 30s is often about building careers, exploring opportunities, and enjoying newfound independence. But alongside these exciting milestones lies an uncomfortable truth: unexpected expenses don’t wait for the “right time.”

Whether it’s a sudden medical bill, a job loss, or urgent family needs, financial shocks can derail your progress before you know it. That’s where an emergency fund comes in — a simple yet powerful tool to protect young investors from debt traps and keep their financial journey steady.

“For young Indian investors – particularly Millennials and Gen Z -- building an emergency fund is not just important—it is foundational to financial security. Life is inherently uncertain, and unexpected expenses like medical emergencies, job loss, or urgent family requirements can strike at any time,” says Col Sanjeev Govila (Retd), Certified Financial Planner and CEO, Hum Fauji Initiatives, a financial advisory firm

An emergency fund acts as a financial shock absorber, providing peace of mind by ensuring that you aren’t forced into debt or dipping into long-term investments when life throws a curveball.

“Many young people believe they can skip this step because they are early in their careers or have no dependents yet. This is a myth that can lead to costly mistakes,” says Govila.

The advantage young people have is time — they can build their emergency fund steadily and benefit from compounding on other investments by keeping those intact.

Ideally, an emergency fund should cover three to six months of essential living expenses. This buffer ensures that during income disruptions, your financial goals stay on track without derailment.

“An emergency fund is the financial umbrella you carry to stay dry in life’s unexpected storms. Without it, even sunny days can feel like a downpour,” observes Govila.

How To Build An Emergency Fund?

To build this fund, young investors should ‘pay themselves first’ by earmarking a fixed portion of their savings into a very liquid, low-risk vehicle such as a savings account or money market fund.

“Avoid investing this money in volatile assets because the goal here is accessibility, not high returns. Automation tools and direct transfers to a dedicated fund can help maintain discipline,” says Govila.

Young Indians must prioritize an emergency fund — it's the bedrock of financial independence. It shields you from expensive debt traps, protects your wealth-building journey, and empowers you to face challenges confidently, making it a non-negotiable step in smart financial planning.