Emergency fund: how much, why & where

Every financial expert, every financial blog talks about the importance of an emergency fund. That will cover expenses like unexpected repairs, medical bills for minor illnesses, travel, etc. The fund should also be large enough to cover living expenses in case of a job loss till you find a new job, or if a family member has to move in with you for any reason, or if your roommate(s) moves out and you have to pay the entire rent till you can find either a new house or a new roommate.

The size of the fund should be atleast 6 months of the fixed living expenses, if you have no children or dependents. If you do, I think 10 months is required. The fund should be larger the further away from family or friends you live. I strongly believe that this fund (atleast 3 months worth of expenses when you have just started earning) should be built before investing money anywhere. Then you can build up both your investments as well as the emergency fund.

Most of the emergency money should be in a savings account that you can access anytime, and yet gives a high interest should you not touch it at all. But some of it has to be kept as cash. Think of it this way: what if there is an emergency and you cannot go to an ATM? As someone who used to not have even Rs. 500 cash most of the times, I have often borrowed cash from family, friends and roommates to cover trivial expenses.. Specially those living alone need to have cash with them at all times.