Glossary
Emergency Fund
The emergency fund is the number 1 priority for individuals who no longer have expensive debt. Not because it is the most profitable investment (it is not), but because it prevents you from having to make a bad investment when the unforeseen happens.
How much to save
| Situation | Size of the fund |
|---|---|
| Stable employee, no dependents | 3 months of fixed cost |
| Employee with dependents | 6 months of fixed cost |
| Self-employed / freelancer / business partner | 6-12 months of fixed cost |
| Stable public servant | 3 months of fixed cost |
Where to invest the fund
- Government bonds or Treasury bills (high security, daily liquidity)
- High-yield savings accounts in major banks
- Certificates of deposit (CD) with early withdrawal options
- Simple fixed income fund with low fee (below 0.5% p.a.)
How to build from scratch
- Calculate your honest monthly fixed cost (not the "ideal", the real one).
- Define the target size (3, 6, or 12 months).
- Set a sustainable monthly contribution (10-20% of net income).
- Set up a scheduled automatic transfer for the day after the salary.
- Do not touch this money unless for a real emergency.