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Financial Education

Unforseen$: The importance of an emergency reserve

To preserve financial security and prevent debt in the event of unanticipated occurrences, it is imperative to have an emergency fund.

In addition, reserve building can help cultivate healthy financial habits and lay a more stable financial behavior.

In this Financial Education article, we will explain what an emergency reserve is, why having one is important, how to set it up, and some tips on ways of handling any unforeseen financial needs that may arise.
What is an emergency reserve?
An emergency fund is an amount of money that you can set aside to help you deal with unexpected needs. It's a saving, dedicated exclusively to covering unforeseen costs, such as medical bills, home repairs, job loss, or any other event that could  have an impact on your finances.

While it's difficult to know exactly how much money you'll need in an emergency situation, experts recommend having at least three to six months of covered expenses in your emergency account. 
Why is important to have an emergency reserve?
Having an emergency fund is crucial for a number of reasons:
  • Handling unforeseen costs: Having an emergency fund on hand can help you cover unexpected expenses, such as medical needs, home repairs, or even help you deal with unexpected job loss while avoiding emergency loans with high-interest rates;
  • Lessen stress: it can also help easen the strain of dealing with unforeseen circumstances and shield your family from hardship.
  • Protect your investments: If you need to sell an asset to cover unexpected expenses, you may lose money by selling those assets in an unfavorable market. As a result, having savings can come in handy, as it enables you avoid such circumstances.
  • Improve your financial health: Having an emergency backup can also assist you in improving your financial turnaround, help boost your confidence and make you feel more secure in unforeseen situations.
How to create an emergency reserve?
Establishing an emergency account may seem difficult, but it is possible to do this with an effective strategy.

Here are some steps you can follow to make the process easier:
  • Change behaviors and habits:  Managing to save with a limited budget is exclusively based on your thinking and improving your financial habits. In addition to the discipline required to control expenses, changing your view and behavior surrounding money helps save a little extra every month. Be perfectly aware of your habits, your expenses, and your budget to establish priorities;
  • Set Goals: Determine how much money you need to save for your emergency fund and be consistent. It is recommended you create an emergency reserve with three to six months of fixed expenses;
  • Create a separate account: Keep your emergency fund separate from your salary account. This ensures that the money is available for emergencies and not spent on everyday needs and expenses;
  • Schedule your automatic transfers to your emergency account: use, Caixa's Banking Digital solutions to schedule your automatic transfers between accounts;
  • Create an emergency savings plan and stick to it consistently.
Follow our Financial Education tips to learn how to manage your money; towards a healthier financial life.
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