look news india
Leaving the 9-to-5 corporate job and starting their own startup, getting into freelancing or following their desired passion is the first desire of millions of youth today. But often people make a big mistake – they resign from the job relying on their emergency fund.
According to personal financial planners, there is a world of difference between an emergency fund and a freedom fund. An emergency fund is a safety net for life’s unexpected calamities (like job loss or sudden serious illness), while a freedom fund gives you the financial freedom to take risks as you wish, experiment and build a new business without the fear of failure.
| scale | Emergency Fund | Freedom Fund |
| original purpose | Avoidance of Unforeseen Crisis | Planned career change or starting a new business |
| Duration (Coverage) | 3 to 6 months of essential living expenses | 12 to 24 months of household expenses + initial business runway |
| Where to keep the money? | 100% Liquid (Savings Account, Liquid Mutual Fund) | Liquid + short-term debt funds + separate business current account |
| mental impact | “If trouble comes, we will take care” (defensive thinking) | “Can work for 1-2 years without earning” (aggressive thinking) |
If you’re planning to leave your job in the next 1 to 2 years, your freedom fund should have three distinct components:
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Bucket 1: 12 to 18 months of fixed living expenses (Household Runway):
Rent/home loan EMI, children’s school fees, ration, grocery and utility bills. It takes an average of 12 to 18 months for a new business to become profitable; Your household budget should not waver during this period.
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Bucket 2: Separate standalone health and term insurance:
Corporate group health insurance ends as soon as you leave the job. The first rule of Freedom Fund is to have adequate personal floater health cover (minimum ₹15-25 lakh) and a pure term insurance plan for yourself and family at least 6 months before resigning.
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Bucket 3: Business Seat-Capital and Operations Cost (Initial Seed Buffer):
First year of business expenses—such as website, software subscriptions, marketing, inventory, and initial legal and tax compliance fees. Never mix it with your personal household expenses.
Suppose your current monthly essential household expenses are ₹60,000 And you want to start a consulting or digital venture:
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18 month domestic runway: $60,000 \times 18 = \mathbf{₹10,80,000}$
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Annual personal health and term premium: Approximately $\mathbf{₹40,000}$
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Business operational expenses for the first 12 months: Approximately $\mathbf{₹3,50,000}$
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Emergency Buffer: $\mathbf{₹1,30,000}$
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Total Freedom Fund Required: About ₹16,00,000
Unless you have this entire amount secured in your bank or in liquid instruments, resigning from your current salaried job may cause severe financial stress for you.