An emergency reserve, also known as a financial reserve is an amount of money saved to be used in case of unforeseen or financial emergencies.
It’s important to have an emergency fund because it will help you keep your finances in order when you face difficult financial situations, such as losing your job, having to do a major repair on your house or car , or facing an unexpected illness.
Here, at Inform yourself, we will help you to better understand what a financial reserve is and where toinvest to guarantee the security of your finances.
What is an emergency reserve?
An emergency fund is an amount of money that you set aside specifically to cover unexpected expenses, such as job loss, health problems, or unexpected home or car repairs. That amount should be available to you when you need it, without the need for asset sales or borrowing.
Having a financial reserve will help you to prevent the accumulation of unnecessary debt and financial stress. The emergency reserve is the first step to be taken by anyone who wants to start with investments. In fact, everyone should have such a reserve, whether they are investors or not.
How much money should I have in my emergency fund?
The exact amount of your financial reserve will depend on your monthly expenses and the number of dependents in your family. In general, it’s recommended to have between three and six months of your monthly expenses in your financial reserve.
For example, if your monthly expenses total $4,000.00, your emergency fund must be at least $12,000.00. If you have a family with many dependents or work in a volatile industry, you may need to have a larger emergency fund.
If you are a civil servant or have a job with tenure, you may not need such a large reserve. Now if, for example, you are a self-employed professional and your monthly earnings are not consistent, perhaps the ideal would be a larger reserve.
When investing your emergency reserve, choose safe and low-risk options, in the first place the most suitable is the Savings Account, but CDBs and the Selic Treasury can also be used, but with some liquidity restrictions. These investments may offer modest returns, but they are safe and more easily accessed when needed.
In short, having an emergency fund is the first step in a solid financial plan. It will help you to prevent the accumulation of unnecessary debt and financial stress in times of unforeseen events or emergencies.