Emergency Fund

The reference is your expenses, not your income: what it costs to run your life for a month, multiplied by the margin that lets you sleep.

Where to keep it

In risk-free liquidity available within days: an interest-bearing account or a money-market fund. Where not to keep it: in stocks (their volatility is incompatible with "might be needed tomorrow"), in locked deposits, or in any asset that can be worth 30% less exactly when you need it. Earning something is desirable; being available is mandatory. Losing a little to inflation is simply the insurance premium.

The three classic mistakes

1. Investing it "in the meantime": if it sits in stocks, it is not an emergency fund — it is part of the portfolio under another name.
2. Not refilling it after using it: after the emergency, topping it back up becomes priority number one, ahead of contributions.
3. Making it infinite: 18 months of idle expenses for a stable employee is pure opportunity cost — beyond a reasonable cushion, the excess works better inside your asset allocation.