Calculate the ideal size of your financial safety net based on your cost of living and the risk of your profession, estimating the time to reach your goal.
The Emergency Fund is the first step in any healthy financial planning. It is a financial amount saved exclusively to cover unforeseen expenses (health problems, home or vehicle repairs, job loss, etc.) without having to resort to loans, overdrafts, or withdrawing long-term investments at a loss.
The recommended size of the emergency fund is measured by the number of months of monthly expenses that you could pay in case you lose your primary source of income from one day to the next:
The emergency fund resources should not focus on high returns, but rather on extreme security and immediate liquidity (daily). You should be able to withdraw the money in minutes or, at most, on the same day (D+0). The ideal assets are:
Although savings offer immediate withdrawal and are the traditional destination, they yield less than inflation most of the time and have the yield credited only on the "anniversary day" (if you withdraw on the 29th, you lose the yield for the month). CDBs of daily liquidity and Selic Treasury Rate yield daily and are much more efficient for protecting your purchasing power.
If the debts have very high interest rates (credit card or overdraft), prioritize paying them off, as no investment will cover that rate. However, it is prudent to build a mini-emergency fund (e.g., $1,000 or 1 month of expenses) even while paying off debts, to avoid taking on new loans if another unforeseen expense occurs.
Use it only for real emergencies: job loss, serious health problems, essential and unforeseen home or car repairs. Trips, upgrading your smartphone to a new model, or opportunistic purchases are NOT emergencies and should have separate planned investments.