How to build your emergency fund

In a nutshell

An emergency fund is money set aside only for the unexpected. It stops a problem, like an illness or losing your job, from turning into credit card or overdraft debt. A common reference is to save 3 to 6 months of your essential expenses. You can start small and build up.

What it is for

Use the fund for things you cannot predict or put off:

• lost income, such as being laid off or a month without work;
• health problems;
• urgent repairs to the house or car.

It is not for trips, gifts or sales. For those, create a separate goal.

How much to save

Start by adding up one month of essential expenses: housing, food, water, power, transport, medicine and bills that cannot be late. Leave out what you could cut in an emergency, like leisure and subscriptions.

Then multiply. People with a steady income often aim for about 3 months. People whose income varies, like the self-employed, often aim closer to 6.

Example

Ana's family spends R$ 2,500 (Brazilian reais) a month on essentials.

• 3 months: 3 × R$ 2,500 = R$ 7,500.
• 6 months: 6 × R$ 2,500 = R$ 15,000.

Ana starts with the 3-month target. She can save R$ 300 a month. The time it takes: R$ 7,500 ÷ R$ 300 = 25 months.

That feels long, so she splits it into stages. The first stage is one month of expenses, R$ 2,500. At R$ 300 a month, she gets there in about 9 months.

One day, with the R$ 7,500 in place, the car breaks down and the repair costs R$ 800. She pays from the fund: R$ 7,500 − R$ 800 = R$ 6,700. To top it up, she goes back to saving R$ 300 a month. In about 3 months the fund is full again.

Where to keep the money

The fund needs two things: safety and quick access, meaning you can take the money out the same day or the next. A high return comes second. Some types of savings in Brazil that usually meet these needs:

• Poupança (savings account): simple, and you can withdraw at any time. It is covered by the FGC, Brazil's deposit guarantee fund, up to a limit per person and per institution.
• CDB with daily liquidity: a bank deposit certificate you can cash in on any business day. It is also covered by the FGC. Note: the limit is not separate for each product. It applies to everything you hold at the same institution added together.
• Selic-linked government bond, through Tesouro Direto: backed by the National Treasury, not by the FGC. If you request the withdrawal by 1 p.m. (Brasília time) on a business day, the money usually arrives the same day; after that, the next business day.

Today, the FGC covers up to R$ 250,000 per CPF (Brazilian taxpayer ID) at each institution or financial group, with an overall cap of R$ 1 million every 4 years. Check the rules on the FGC website. Compare fees, how long withdrawals take and whether returns are paid on a set date. Avoid keeping the fund in anything whose price can drop sharply, like stocks or crypto.

Step by step

1. Add up one month of essential expenses.
2. Multiply by 3 for your first target. If your income varies, plan to reach 6 months later on.
3. Pick a fixed amount to save every month, even a small one.
4. In Meu Gasto, create a goal called "Emergency fund" with the amount and date.
5. Save on the day your money comes in, before spending on anything else.
6. Keep the fund somewhere separate from your everyday account, safe and quick to access.

Common mistakes

• Waiting for leftover money to start. There is almost never any left over. Fix: save a small amount as soon as your pay arrives.
• Keeping the fund in your everyday account. It disappears without you noticing. Fix: use a separate place.
• Chasing the highest return. Something that pays more may take longer to withdraw or lose value. Fix: put safety and quick access first.
• Using it and not topping it up. The next emergency finds you unprotected. Fix: go back to saving the same monthly amount until it is full.