Having a “cash cushion” for possible contingencies will help you manage and resolve unforeseen events. Technically, this is called an emergency fund.
There you save resources that allow you to have money available in case your finances are at risk.
It’s about anticipating possible crises for your wallet. Therefore, it is important that you always evaluate what your income is and whether you expect a reduction or change in the short or long term.
According to Santiago Rodríguez, professor at the Faculty of Administration at the Universidad de los Andes, it is advisable to have a reserve for personal expenses of at least three months; However, it depends on how long the person spends saving.
To achieve this, “you must have a monthly amount to feed this fund until you reach the defined goal.” In addition, it is advisable to store it in an account other than the daily spending account. This ensures that these resources are not mixed and that it becomes more difficult to dispose of these funds since they are not “at hand,” explained Rodríguez.
You can then deposit the money into a new savings account, a digital wallet, a collective investment fund (FIC) managed by a trust company or stock broker, or it can be placed in a certificate of deposit (CDT).
Why create an emergency fund?
The teacher assures that in general it is important to make reservations at home because it allows one to be calmer and safer.
Savings are crucial, even if you don’t know what you’re going to use them for, because you have alternatives. Often people lose control and the ability to reason because they have no money in their pockets, but they still have many responsibilities to take on. This will make you calmer and give you time to think about solutions.
Then it will serve to deal with problems such as “decreases in income, unemployment, rising prices of goods and services, litigation, tax obligations, fines, illnesses, deaths, unexpected layoffs, accidents, births and others.” ”
In addition, Rodríguez points out that in the event of a financial crisis in the country of residence or worldwide, you may even be in a better position, as it can cause “volatility in financial assets and the solvency of financial institutions.”
Ultimately, having an emergency fund gives you and your family more options to weather a crisis.