Financial unforeseen events can happen at any time and often end up destabilizing personal finances. Job loss, unexpected medical expenses, car or home repairs are just a few examples of situations that can generate unforeseen expenses and compromise the budget. To deal with these unforeseen events, it is important to have an emergency reserve or contingency fund.
The emergency reserve is an amount that must be kept in a specific account and intended to cover unexpected expenses. The amount may vary according to income and monthly expenses, but in general, it is recommended to save three to six months of expenses. This amount must be available for withdrawal at any time and must only be used in emergency cases, such as medical expenses, job loss or unforeseen events that generate extra expenses.
The contingency fund, on the other hand, is an amount that can be used for non-emergency expenses, but which are not foreseen in the budget. For example, if the person wants to take a vacation trip, but it is not included in the monthly budget, they can use money from the contingency fund. This amount should be intended for non-emergency situations, but that may generate extra expenses.
The emergency reserve and the contingency fund are important because they allow people to deal with financial unforeseen events without compromising the monthly budget. When an unforeseen event happens and the person does not have a reserve or available fund, they may end up resorting to bank loans, which have high interest rates, or even delaying payments, generating more expenses and financial difficulties.
To create an emergency reserve or contingency fund, it is important to set a savings goal and set aside a portion of your monthly income for this purpose. This amount should be kept in a savings account or another easily accessible account and should only be used in emergency or contingency situations.
In summary, the emergency reserve and the contingency fund are important tools for dealing with financial unforeseen events and maintaining the stability of personal finances. It is important to have the discipline to save a portion of your monthly income and save that amount in a specific account, so that it is available when needed. By creating an emergency reserve or contingency fund, people can feel more secure and prepared to deal with any financial unforeseen events that may arise.
