An emergency fund, often referred to as a rainy day fund, is vital for financial planning, allowing individuals to manage unforeseen expenses such as medical bills or car repairs without resorting to loans or credit cards. Financial experts suggest that individuals should save between 3 to 6 months of essential expenses, while freelancers or those with unstable income should aim for 6 to 12 months. To build this fund, individuals should first list their non-negotiable monthly expenses, including rent, groceries, and insurance, and multiply this total by the appropriate factor based on their income stability. For instance, if monthly expenses are ₹25,000, an emergency fund of ₹1.5 lakh can be established over time by saving small amounts consistently. Financial advisor Nitin Kaushik recommends a two-phase approach: starting with a 'mini fund' of one month’s expenses and then automating savings into a recurring deposit or liquid fund. It is crucial to keep the emergency fund separate from daily expenses and to avoid volatile investments to ensure accessibility when needed.