Getting a certain amount saved to deal with unexpected events is certainly an important step for anyone who is organizing their personal finances. In this case, the strategy used is the emergency reserve.
THE emergency reserve it can be a smart option, given the possibility of facing occasional situations like, for example, unemployment, having an accident or paying for the repair of an appliance.
Thus, understanding how to save and guarantee a certain amount is essential for good financial planning, after all, unforeseen events happen. However, many people find it difficult to make an emergency reservation.
Thinking about it, we at Entrepreneurship in partnership with the HR Consultants UKy blog, we have prepared special content, with tips that will make you understand how to structure a reserve amount to be used in emergencies. Check out!
What is the emergency reserve?
The emergency reserve is the money saved in order to use the amount to deal with emergency events.
These events can be, for example, an unexpected dismissal, an accident that entails hospital expenses or even the breakdown of an appliance.
All of this has a cost, and it can be expensive for those who do not have a financial organization that teaches them to act in the face of these eventualities.
One financial planning allows you to lead a financial life compatible with your budgetary reality, in addition to allowing you to see what needs to be done to achieve your goals. So, it is necessary to know how to accomplish it.
The emergency reserve can be considered a type of financial planning, as it serves precisely to ensure that unexpected expenses do not cause a major loss in personal savings.
How to calculate an emergency reserve?
First, to make an emergency reservation, you need to know your own daily reality. That is, the amount to be separated needs to be aligned with your cost of living.
THE cost of living it is the amount of money needed to maintain a certain standard of living. This amount includes basic expenses such as food, housing, health and transportation, welfare and leisure.
A method for calculating the cost of living can be using the formula:
- Fixed Expenses + Variable Expenses: Total Cost
You fixed expenses or essential expenses are the expenses that need to be paid every month, such as electricity and water bills, rent, health insurance, supermarket fair, fuel, among other types of monthly fees.
The variable expenses or extra expenses refer to expenses that do not need to be paid periodically, for example, clothing, leisure travel, aesthetic procedures.
That is, whether or not to spend monthly on this type of activity is part of a decision that requires more individual autonomy. This is because they are considered as part of an “extra” expense, they are not necessary in everyday life and can be dispensable at any time.
Thus, with knowledge about the cost of living, it is possible to move on to the second step: planning a budget to be deposited in the emergency reserve.
How many months should the emergency reservation be made?
The amount for the emergency reserve can be equivalent to at least three months of the cost of living. This means that the amount of the cost of living must be multiplied by 3, with the result being the amount that should make up the reserve.
However, an ideal reserve would be around 6 times the cost of living, that is, a reserve for 6 months.
However, it is important to highlight that the budget for this economy depends on the financial conditions of each individual, taking into account factors such as security and stability, which are not the same for everyone.
Where to invest the emergency fund?
An important step in investing in the emergency reserve is to think about the liquidity that application. Liquidity represents the facility to redeem the investment. That is, it is necessary to choose investments with greater liquidity.
This is because, in an urgent case, it is necessary to have access to the money saved quickly and easily. Thus, investments in fixed income and variable income may not be the best option from which to invest the emergency reserve.
For example, in the case of investment in long-term funds with fixed-income securities, the amount applied may be locked for a long period. These funds have no daily liquidity. This makes it difficult to withdraw money in an emergency.
In addition, equity options may also not be a good option for investing in the reserve. This is due to another factor to be considered: the volatility of the asset.
Volatility, in the world of investments, it is a measure of fluctuations in the price of a financial asset in the short term. That is, the greater the volatility, the greater the variation suffered in the prices of these assets.
In the case of investments in variable income, the investor is not able to know exactly what his return will be.
Thus, the volatility in these applications can be high. An example of this is the changes that occur daily in stock prices.
In addition to these options, there is also savings. THE savings It is a type of bank account in which it is possible to save an amount and receive a percentage on the amount applied.
This type of investment is widely considered among people who wish to make an emergency reservation. In savings, liquidity is high, that is, when requesting a redemption, the funds will go to the current account immediately.
However, savings have a low profitability when compared to other investments. In addition, the remuneration for this application is only monthly and not daily.
Therefore, none of these options are considered a good place to leave the emergency amount, however, there are alternatives that are more appropriate and efficient in planning personal finances.
With that in mind, we can address some ways to build an emergency reserve more safely.
Tips for building an emergency reserve
In addition to knowing where to invest the amount saved, it may also be interesting to know some behavioral tips that, if followed with discipline, guarantee the necessary skills to build a good emergency reserve.
Some of the ideal investments for the emergency reserve are the Selic Treasury, the Bank Deposit Certificate (CDB), the DI Funds, the Real Estate Bill of Lading (LCI) and the Agribusiness Letter of Credit (LCA).
The Treasury Selic is one of the public securities for sale of the Treasury Direct. Tesouro Direto is a National Treasury program that serves to sell federal government bonds to individuals through the internet.
The Selic is considered a good option to compose the emergency reserve due to its daily liquidity and low volatility. In addition, its profitability is linked to the variation of an index, the Selic Rate.
The Selic rate is the basic interest rate of the UK residents economy. It is the index used in interbank transactions and serves as an instrument of monetary policy.
Selic (Special Settlement and Custody System) it is a system used by the central bank that records all financial transactions involving national treasury bills.
In return, the investor receives a rate of return, which is the value of the annual Selic rate.
With the characteristic of daily liquidity, the investor who invests in Treasury Selic has the yields available in his account every day. In addition, the low volatility of the security indicates that the purchase price is close to the sale price.
That is, if necessary, the investor can sell the security and redeem the application. However, the investor may still lose some amount, but the loss is less compared to other Treasury Direct securities.
The CDB stands for Bank Deposit Certificate, a fixed-income security issued by banks to raise financial resources.
In practice, the CDB works as a type of loan to financial institutions, which return this amount with the correction of interest. It has daily liquidity, which allows the investor to redeem their money at any time.
In addition, the CDB has warranty by FGC (Credit Guarantee Fund) in the amount of up to £ 250 thousand per CPF or CNPJ, per group of deposits or investments.
This means that if the institution breaks, FGC guarantees the return of up to £ 250 thousand by CPF or CNPJ.
LCI and LCA
THE Mortgage Loan Letter (LCI) is a fixed income investment with securities issued by banking institutions. LCI promotes fundraising for the real estate market.
Meanwhile, the Agribusiness Credit Letter (LCA) is a fixed income investment issued by banks in order to obtain funds to finance the agricultural sector.
The LCA works in the same way as the LCI: the investor lends capital to the bank and receives his money back with increased interest.
These are non-taxable income, that is, exempt from income tax. In addition, they have facility for redemption.
The DI Funds, or fixed income funds referenced to DI, are investment funds that have, on average, 95% of investments in public and private securities linked to Selic rate.
The purpose of this fund is to seek the greatest profitability possible linked to low risk. Thus, most investments are made in assets with a return close to the Interbank Deposit Certificate (CDI), which accompanies the basic Selic interest rate.
DI funds are highly liquid, which allows access to the amount invested at any time.
Avoid superfluous spending
One habit that can hurt the budget of an emergency reserve is impulsive buying.
This is because this habit makes you consider an unnecessary purchase as something that must be acquired immediately. In this way, the impulse purchase it is an engine for financial disorganization.
After defining what the variable or extra expenses are, it is important to understand that in order to build a reserve that will be sufficient, it may be necessary to decrease less urgent purchases.
Know when to use emergency reserve
Finally, the emergency reserve should only be used in cases of urgency, such as:
- Illness or death of family members;
- Accidents that demand medical expenses;
- Natural disasters that can affect your home;
- Unemployment or change of position that causes economic loss.
Thus, it is possible to recognize which situations demand the use of emergency income.
Therefore, like other actions, investing correctly, avoiding impulse buying and knowing the ideal time to withdraw the reserved amount are the main steps to build a emergency reserve efficiently and safely.
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