Emergency Reserve

in LeoFinance3 months ago
It is a highly liquid capital available for emergencies. It consists of 3 to 6 months of monthly expenses in savings accounts.

It can be larger or smaller according to the characteristics and financial life of each one.


As it is not possible to predict everything, for other cases in which the reserve is insufficient, we have our assets, especially the fixed income portion as greater security.

The objective is to have immediate liquidity, not income because the Emergency Reserve tends to be constantly moved. If it's not moving, it's probably bigger than it should be. If so, reevaluate and invest part of it.

Emergency Reserve must be in the Savings Account. The goal is immediate liquidity, not profitability. What matters is that the money is available when you need it.

If you place the emergency reserve in something with low liquidity, in search of more profitability, at the time of the emergency you will have difficulty accessing the money, it will not solve the problem or it may have a higher cost to resolve. All of this ends up in more spending and in the end, the supposed higher profitability vanishes.

The size of the emergency reserve must be determined by each one according to their characteristics. Whether you have a family or not, age, stability, etc.

The default is to start with anywhere from 3 to 6 months of spending, but it can be less or more. Each one decides according to their characteristics and a size that gives tranquility.

The amount depends on the living and spending situation. The more uncertain the income, the larger the reserve must be.

Before starting any investment, it is essential to have an emergency reserve.


Image: PixBay & Research source: Bastter

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