An emergency fund is dedicated cash reserve — for sudden financial shocks (job loss, medical emergency, equipment failure) — held in highly liquid form, accessible immediately. It is the prerequisite for investing: without adequate emergency reserves, a crisis may force you to sell assets at a market low, locking in permanent losses.
## How Much to Keep
**Standard recommendation: 3–6 months of basic living expenses** (expenses, not income).
Single, stable employment (civil service, large corporations): 3 months. Family with mortgage/car loan, less stable employment (freelance, small private company): 6 months or more. Single income source: consider 9–12 months.
“Basic living expenses” covers only necessities to maintain life (rent/mortgage, utilities, food, healthcare, minimum debt payments) — not entertainment, dining out, or other reducible items. This number is often lower than intuition suggests: someone earning ¥20,000/month may have basic monthly expenses of only ¥8,000–12,000.
## Where to Keep It
Priority order: liquidity first, safety second, return rate tertiary.
**Best options**: money market funds (Yu’E Bao, Licaitong in China — 1.5–3% annualized, T+0 or T+1 redemption); bank demand deposits (0.2%, but instantly accessible — good for 1–2 months’ immediate reserve); short-term government bond reverse repos through brokerage accounts (slightly higher rates, 1–7 day terms).
**Do not use for emergency funds**: stocks, ETFs, equity funds (price volatile, worst timing to sell is usually during a personal crisis); time deposits (penalty for early withdrawal); high-yield products with poor liquidity.
## Building on Limited Income
**Phase targets**: aim for 1 month first, then gradually increase — don’t wait until 6 months is achievable to start.
**Automatic transfer**: on payday, automatically move a fixed amount to a money market account before spending — pay yourself first.
**Windfall allocation**: direct bonuses, gifts, or one-time income toward the emergency fund until the target is reached.
**Reduce one non-essential expense**: identify one recurring expense to reduce (subscriptions, takeout frequency); redirect the savings directly to the emergency fund.
Only after the emergency fund reaches target should additional savings move toward investing.
See [Index Fund Investing](https://sunqi.org/index-fund-investing-basics-en/) and [Financial Independence](https://sunqi.org/financial-independence-fire-en/).
