We hear about the booming stock market, the arrival of new companies via IPO, and then we think: “everyone is making money except me”. If you’ve arrived at this column, it’s because you want to multiply your savings, but first you need the first step: building the emergency reserve, a kind of mattress you’ll be able to count on if you need to.
But what will be appropriate (or not) for these first investments? The column explains below.
The video above is even part of a new series called “My First Investment“, aimed at those who are starting in the market.
The emergency reserve is also called the security or peace reserve, precisely because it is intended to be a lifebuoy in times of hardship. It’s that money you save and invest to deal well with unforeseen events, which are basically foreseen because everyone has a problem at one time or another.
Let’s assume you become unemployed. The amount saved would help you pay the bills while looking for another job, without despair or getting into debt.
It’s also good for good situations: if you get a scholarship in another country and need to buy a ticket, it’s the reservation that helps you close the account.
In general, it amounts to 6 to 12 months of the cost of living. That is, if on average you spend R$4,000 per month, it should be at least R$24,000 (six times four), and it can reach R$48 thousand (twelve times four).
Each case is different. If you are self-employed and have a lot of monthly change in income, you may want to have a larger reserve. If you are a civil servant and have job security, you may feel comfortable with a smaller mattress.
Importance of emergency reserve
A reserve help on at least three questions:
- It prevents people from resorting to credit, even easier and more expensive, such as overdraft and revolving credit card checks when they need money.
- Also it avoids the withdrawal of investments that may not be at the right moment. An example is the actions that live a constant ups and downs. If you have to withdraw funds at a time of low, the investor will take a loss.
- Allow time for the person to calmly resolve the problem. If you become unemployed, for example, you will not need to accept the first job offer.
Reserve characteristics and pitfalls
Not every investment is worth it when we’re talking about the first steps. Three characteristics need to be noted.
The first is liquidity, meaning money needs to be available when you need it. In the market, investments with liquidity at maturity usually have higher returns, but for those who are starting this can be a trick. After all, if emergency money is for unforeseen circumstances, you can’t wait to receive it. So look for liquid applications.
The second feature is low volatility (or predictability of profitability). The shares are available for withdrawal every day, but they are not indicated in this case precisely because of the ups and downs. You need to know how much you can count for your emergency when it happens.
Finally, the reserve needs to be secure, which means you need to trust the institution behind the investment. It’s important money that will help you solve problems.
Combining useful with pleasant, many fixed income applications meet all three criteria to form the emergency reserve. In fixed income, you already know at the time of contracting how much you will earn: if it is a fixed interest or if it follows some indicator such as CDI Where Selic, the two most used rates as reference.
There is usually also liquidity. Note that I have written “generally” as there can be pitfalls. Always check if liquidity is daily.
Fixed income also has security because many securities are covered by the Credit Guarantee Fund (FGC), up to R$ 250,000.
The treasure Selic, a Treasury Direct bond, is a good example. In this application it is for the government that the investor lends money. In other words, it is considered safe as the risk of default is low.
It is also liquid because the withdrawal can be made at any time. Furthermore, it is predictable (follows the Selic rate) and little volatile.
CDBs with daily liquidity are another option, but in this case the loan is being made to a bank. There is coverage of the FGC if the issuing bank has problems such as bankruptcy. There may also be daily liquidity.
A point of attention concerns the remunerated accounts. Such digital accounts invest the investor’s money in CDBs or in Tesouro Direto and offer excellent rates of return.
Care should be taken not to mix the day-to-day money, the one used to close the month, with the reserve. In digital accounts, the investment is very easily accessible and thus can be spent without the person realizing it. The tip is to make two accounts in case you are going to make an emergency reservation there.