Video courses › The basics: saving, inflation, risk › Lesson 5

The emergency fund: the first thing to build

What a reserve for unexpected events is for, how to think about its size and where it is usually kept.

Video lesson in preparation (AI-generated presenter). Full text below.

Lesson text

Before talking about investments there is a step that always comes first: having a reserve of money for the unexpected. A car repair, a medical bill, a few months without work. Without a reserve, an unexpected event forces you either to borrow or to sell what you have, perhaps at the least favourable moment.

How large should it be? Financial education materials often refer to a sum equal to several months of essential expenses, but there is no number that suits everyone. A household with a stable income and two salaries can reason differently from someone who is self-employed or has dependants. The starting point is knowing how much you actually spend each month on essentials.

Where is it kept? The feature that matters is availability: the money must be withdrawable at once and without losing value. That is why the reserve usually sits in simple, liquid products rather than in instruments whose price fluctuates. The fact that it earns little is not a flaw: its job is not to earn, it is to be there when needed.

Building the reserve takes time, and that is fine. Setting aside a small but regular amount, better still automatically right after your salary arrives, is the simplest way. Only when the reserve exists, and there are no expensive debts to pay off, does it make sense to ask what to do with any remaining savings.

In three points

• The emergency reserve comes before any investment.
• Its size depends on essential expenses and income stability: there is no figure valid for all.
• It must be available at once and free of value swings: earning is not its purpose.

Educational and informational content only. It is not personalised financial, investment or tax advice. All investments involve risks, including the possible loss of invested capital.

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