12 months to build an emergency fund step by step

Learn how to build your emergency fund!

Unforeseen events can happen at any time, which is why building an emergency fund is essential.

By having money saved for these moments, you can deal with unexpected situations with more peace of mind.

Want to start 2022 with more planning and organization? Then keep reading to learn how to build an emergency fund!

What is an emergency fund?

Before anything else, it is important to know what an emergency fund is.

Well then, the emergency reserve, also called an emergency fund or financial cushion, is savings saved over time to be used for unexpected expenses or unemployment, for example.

In other words, it is money that will keep you safer in times of financial difficulty.

Ideally, this amount should correspond to at least six months of your monthly living expenses.

However, as we said, this money can also be used for unforeseen events, such as:

• Unexpected dental treatment

• Car repair

• Appliance repair

• Last-minute trips that are not for leisure

These are some examples of unforeseen events that can happen from one moment to the next.

In addition to these problems, it is important to have this money saved in case you lose your job, something that unfortunately can happen.

This way, you guarantee payment of your fixed expenses for a few months, until you find another job.

How to build an emergency fund?

Now that you know what we're talking about, it's time to learn how to build your emergency fund.

Let's get practical then?

See the step-by-step guide to setting up your reservation for 2022:

1. Develop a financial plan

The first step is to create a financial plan.

Before making any changes to your financial life, you need to understand your real situation.

In other words, you need to know exactly what your main income and expenses are.

So you can create a financial planning.

The goal is to create a strategy to optimize the use of your money and, thus, build up your reserve, as this will make it easier for you to organize yourself.

2. Separate the important from the superfluous

At this stage, it is very important that you identify which NON-essential expenses are taking up your money.

Once you identify them, start organizing to eliminate them or at least reduce them.

With a deeper understanding of your financial situation, it becomes easier to identify which expenses can be cut.

Of course, there are expenses that cannot be eliminated, such as rent, condominium fees, water, electricity, among others.

However, there are expenses that are not necessary and, even small ones, when accumulated, turn into a big snowball.

One thing you can do is list in ascending order what your priority expenses are.

This way, you will be able to see what you can eliminate from your budget.

Of course, you don't need to make so many cuts that you stop having fun and enjoying your free time.

Just be careful that these expenses do not compromise your income and the creation of an emergency reserve.

3. Set savings goals for the month

With some expenses cut, it is now possible to start saving.

The problem is that saving money It is not usually a task that comes naturally. Therefore, it is essential to have motivation and discipline.

As we said, ideally your emergency fund should be equivalent to 6 times your monthly expenses.

For example, if you spend R$2,000.00 every month on your bills, your reserve should be at least R$12,000.00.

And this is when people start to get lost, because they think about the total amount (R$12,000) and are unsure of how to get that money.

Remember that we are talking about building your reserve, which is something that will take a few months. 

Therefore, if for now, you can only save a small amount, there is no problem at all, as long as you have a clear goal and commit to saving an amount every month.

Our recommendation is to create smaller goals, at least in the first few months, until you build up your reserve.

4. Avoid impulse purchases

In such a consumerist society, it is very common for people to spend money on things they don't actually need.

But if you are on the path to building your emergency fund and want to be more financially organized in 2022, there is no way around it: you will have to avoid the impulse purchases.

After all, they can take a good part of your earnings.

Learning to save now will allow you to start saving to invest and make frequent contributions once the amount is complete.

This way, you will see your money grow further.

But for this to happen, you need to avoid impulse purchases, especially at the beginning of building your reserve.

5. Invest your reserve

Creating the habit of saving is essential to have more financial peace of mind and speed up the process of creating your emergency fund.

However, saving is just one of the pillars of financial organization. In other words, to protect your assets from inflation and speed up the creation of your emergency fund, you will need to invest.

As you may need the reserve at any time, the ideal is that you invest the money in a safe and highly liquid investment, so that you can withdraw the amount whenever you want.

There are some fixed income applications with these characteristics.

Among the main alternatives are the Tesouro Selic and the Interbank Deposit Certificate (CDB), with daily liquidity.

Banks and/or digital wallets, like Nubank and Picpay, also offer daily liquidity and higher returns than traditional savings accounts.

Conclusion

To create and use your reserve properly, in addition to planning and organization, you need to be intelligent.

After all, many people get carried away by impulsive purchases and immediate desires, spending the money they have saved on non-essential items.

Therefore, commit to using the money in your reserve only in times of need.