Easy Guide to Building an Emergency Fund: Check Out the Details

Learn how to reserve your emergency fund

Have you ever stopped to think what you would do if an unforeseen financial problem arose right now? Whether it’s an unexpected expense, a health problem or even an emergency at work, building an emergency fund could be the solution.

There are several options for investing your money and building your own fund. Want to know more? Here you’ll find the answers you need to take the first step towards greater financial security and peace of mind.

Why have an emergency fund?

Having an emergency fund is like having a financial safety net. It covers unexpected expenses and prevents you from having to take out loans or use your credit card, which can increase your debts even more.

What’s more, an emergency fund ensures that you can deal with the unpredictability of life more calmly, without despairing in the face of an unforeseen event.

How much should I put away in my emergency fund?

One of the first doubts when starting to set up an emergency fund is how much to put away. The most common recommendation is to have three to six months’ worth of essential expenses put away.

This includes rent, food, transport, fixed bills and other basic necessities. But don’t worry, you don’t have to put it all away at once! The key is to start small and build up over time.

If your income is more unstable or you have dependents, it might be a good idea to go for the higher limit and save for up to six months. But if your financial situation is more relaxed and you have a stable source of income, starting with three months may be enough.

Where to put the money?

Now that you know how much you need to put away, it’s time to decide where to put it. Ideally, it should be accessible, but at the same time not easy to get hold of at any time, to avoid the temptation to use it.

A good option are savings accounts or low-risk investments, such as CDBs with daily liquidity. These investments give you quick access to your money, but they also earn a small return, which helps protect the purchasing power of your fund over time.

Avoid putting your emergency fund in investments that require long terms or have a risk of loss, such as shares.

The main characteristic of an emergency fund is precisely that it is safe and accessible when you need it.

After all, how do you start building your emergency fund?

Many people get discouraged when they think about the amount they need to put together for an emergency fund. The good news is that you can start with a small amount and gradually build it up.

For example, set a fixed amount each month, such as R$100 or R$200, and make it a priority. The sooner you start, the faster you’ll see your fund grow.

Another important tip is to set aside this amount as soon as you receive your salary, before paying other bills or making purchases. That way, you ensure that you’re building up your emergency fund without running the risk of spending the money on something else.

What if I already have some debts?

If you’re in debt, it’s best to focus on paying off the highest interest debts first. This helps free up more money for you to invest in your emergency fund.

Remember that having an emergency fund doesn’t mean stopping paying off debts, but rather having the financial backing to avoid more debt in the future.

Extra tips for keeping your emergency fund healthy

• Review the amount regularly: As your financial life changes, it’s important to review the amount of your emergency fund. If you get a pay rise or have more expenses, you may need to increase the amount you have saved;
• Don’t use the fund for common ‘expenses’: the temptation may be great, but the emergency fund is only for unexpected situations. Avoid using it for planned purchases or day-to-day expenses;
• Have discipline: the key to building a good emergency fund is discipline. Even if you manage to save more money in a few months, keep saving the fixed amount so you don’t lose momentum.

Building an emergency fund may seem challenging at first, but with discipline and planning, you’ll realise that it’s an essential step towards achieving greater financial security.

Remember, the important thing is to start, even if little by little. The financial protection it offers is worth the effort. Over time, you’ll see that this reserve will make all the difference when the unexpected arises, and you’ll be much better prepared to face it with peace of mind.

Written by

Juliana Raquel