Set a target emergency fund based on monthly expenses and income risk.
An emergency fund is sized on essential expenses, not income, because what it has to buy is time — months of keeping the lights on while you find work or recover. Strip the figure back to housing, food, utilities, transport, insurance and minimum debt payments; discretionary spending is what you cut in an emergency, so including it inflates the target. Three months is the usual floor and six the common recommendation, then adjusted for how reliable the income is: two salaries in different sectors need less cover than one self-employed income, where both the likelihood and the duration of a gap are higher. The months-to-target figure is the one that changes behaviour, because it turns an intimidating number into a date.
Home Emergency Fund
Target = essential monthly expenses x months of cover x stability factor; shortfall = target - current savings; months to target = shortfall / monthly contribution
General information, not financial advice. Your appropriate reserve depends on your income security, insurance cover, dependants and debts — consider speaking to a qualified adviser about your own circumstances.
Three if you have two stable incomes and marketable skills; six if you have one income, dependants or work in a sector where hiring is slow. Nine to twelve is reasonable for self-employed or highly specialised roles.
Somewhere you can reach within a day or two without a penalty — an instant-access or high-yield savings account. An emergency fund invested in equities is not an emergency fund, because it can be down 30% exactly when you need it.