Raul Sena has a line I like: it is hard to talk about investing, or about an emergency fund, with someone who lives on less than R$ 4,500 a month in Brazil.
R$ 4,500 is about US$ 820. That is less than a month at the US federal minimum wage, and it would not pay rent in most American cities. In Brazil, the minimum wage is R$ 1,621, about US$ 295 a month.
If you get through that month with everyone fed and the lights on, you already know more about controlling money than plenty of people who sell courses about it. Read this one for the day there is some room left over.
What counts as an emergency
An emergency fund (reserva de emergência, in Portuguese) is money you set aside for when life goes wrong. You lose your job. The car dies. You need a root canal on a Sunday.
It is not for a sneaker sale, or for the trip you really deserve. A quick test: if you did not have this money, would something actually break? If it would only hurt your feelings, it is a wish.
Where to start
Before you build a fund, two things have to be true. You need money left over at the end of the month, and you cannot be carrying expensive debt. It sounds obvious, but it is the part most advice skips. You cannot save from a month that ends at zero.
First, make some money left over. There are only two ways: earn more or spend less, and spending less is usually faster. Look at where your money really went last month (your bank app probably does it for you). Be honest about the gym you never visit and the seven streaming subscriptions from the last post. A small amount counts. R$ 100 left over beats R$ 0 left over forever.
Second, deal with the expensive debt. A credit card balance you carry from month to month, and the overdraft (cheque especial), are some of the most expensive money you can borrow in Brazil. A fund that earns a little above inflation cannot win against a debt that grows much faster, so pay that off first. Cheap debt, like a low-rate loan, can wait. One exception: keep a small cushion, even a few hundred reais, so a single surprise does not send you right back to the card.
A month that ends at zero cannot build anything.
How much?
People argue about this a lot. Two answers come up most:
- 12 months of your cost of living. This is the one I use. It covers what you really have to pay when the income stops: rent, food, bills.
- 6 months of your salary. Easy to remember, and many people use it.
Here are both rules applied to two different people:
Pretty close. The two rules almost agree.
For Ana, the two rules land close to each other. Bruno earns a lot more than he spends, so the salary rule tells him to save R$ 18,000 more than his life actually costs. With a high cost of living and a small salary, you would get the opposite.
I prefer cost of living because your salary also includes money you never needed to spend. Still, neither rule is totally right or totally wrong. They are two points of view. Pick one, and change it when your life changes.
Your life changes the number
Both rules ignore how you live. If people depend on you, if you have fixed commitments like rent or a loan, or if your income goes up and down, you probably want more months. I know that last one personally. When I worked as an independent engineer, some months were good and others were pretty bad. A stable job, a partner who also earns, or no dependents can mean you need fewer.
I will keep repeating this in the series: life is not a spreadsheet. The formula gives you a first guess, and you adjust it for the life you actually have.
What the months buy you
Losing a job is rarely a one-month problem. Here is the same bad luck, eight months without income, with three different savings:
Your income stops today.
At month eight, the person with 12 months is still choosing which job to take. The other two are choosing which loan to take.
Money=freedom.
That is the real reason for the fund. With money in the bank, you are nobody's hostage. A bad boss, a toxic team, a job that eats your Sundays: you do not have to put up with any of it just because the rent is due on Friday. You get to say FODASE (roughly: screw this), walk out, and live in peace until you find something better.
You might never actually do it. Just knowing you could makes the bad days lighter.
Where to keep it
Somewhere safe, where you can get the money out fast. In Brazil that usually means Tesouro Selic or a CDB with daily liquidity (liquidez diária). You can withdraw quickly and the value barely moves.
Crypto, your cousin's startup and the stock market are fine places for other money. A stock can be down 30% the week you need to pay the hospital. A drawer is not great either. Remember the post about inflation: a coin that sits still buys a little less every year.
One month at a time
Do not wait for the perfect number. Pick a rule, do the math once, and save one month of expenses. Then the second month. Done is better than perfect, and that is what we will talk about next.