Emergency fund: how much to save and how to calculate yours

Almost everyone has heard they need an emergency fund. The problem is that the advice usually stops there. How much, exactly? Six months of salary? A whole year? And if you can barely make it to the end of the month, does it make sense to save anything before paying off your credit card?

Without a clear number, many people never start. A vague goal like "put some money aside" has no deadline and is easy to drop. A concrete goal, calculated from your real life, becomes a plan you can follow.

Here you will learn how to size your emergency fund, why the math uses living costs and not salary, and how to build a timeline to get there, with examples in Brazilian reais (R$).

What an emergency fund is and what it is for

An emergency fund is money set aside for surprises that cannot wait: losing your job, a sharp drop in income, a health problem, an urgent repair on the car you use for work, an unexpected trip for family reasons. It is not an investment meant to grow your wealth, and it is not savings for your vacation.

Its role is to protect everything else. Without it, any surprise turns into debt, and the fastest debt to get, like credit card revolving credit (rotativo) and overdraft (cheque especial), is also the most expensive in Brazil. With it, a surprise is just a withdrawal, and you top the fund back up calmly afterward.

It also takes the pressure off decisions: with a few months saved, you can turn down a bad offer or get through a layoff without panic.

Why you calculate it on living costs, not salary

The most common mistake is saying "I will save six months of salary". In an emergency, you only need to pay for what keeps life running. That is why the calculation uses essential living costs: the monthly amount you would spend even in a tight month.

Essential living costs include:

• Housing: rent or mortgage, condo fee, IPTU (property tax) spread over 12 months.
• Household bills: electricity, water, gas, internet, a basic phone plan.
• Food at home: groceries and the street market.
• Necessary transportation: fuel, public transport, car insurance.
• Health: health plan, ongoing medication.
• Education already committed: children's school, a course in progress.
• Debt installments that cannot be late.

Left out, or included at a reduced level, are expenses you would cut in an emergency: restaurants, travel, clothes shopping, most subscriptions, gifts. If you do not yet know how much you spend on each thing, start by learning how to track expenses for two or three months. Without that number, any emergency fund goal is a guess.

How many months to save: the reference table

The most widely used reference in Brazil is 3 to 6 months of living costs for people with a formal job under a CLT contract (Brazil's standard employment regime, with a signed work card) and stable income, and 6 to 12 months for freelancers, independent professionals and anyone with variable income. Tenured public servants usually stay at the low end.

These numbers are a starting point you adjust to your risk.

A few Brazilian terms from the table: FGTS is a severance fund that employers pay into for CLT workers, which can be withdrawn in specific situations such as dismissal without cause; seguro-desemprego is the government's unemployment insurance; and MEI is the simplified legal status for individual micro-entrepreneurs.

Factors that raise the number of months

• Dependents: children, parents or others who rely on your income.
• Concentrated income: a single source of income in the household.
• Health: a chronic condition, no health plan, or an age at which medical surprises get more expensive.
• Job market: professions where finding a new position usually takes longer.
• Physical assets: an older car, a home of your own that needs maintenance, pets.

Factors that allow a smaller fund

• Two incomes in the household, in different jobs and sectors.
• Job stability.
• Other resources you can access quickly, such as an FGTS balance released on dismissal without cause (but do not count it as part of your fund).

Worked example: calculating the fund in reais

Meet Mariana, 32, a CLT employee who lives alone with no dependents. She worked out the average of her essential spending over the last three months:

Her take-home pay is R$ 5,500. If she used "six months of salary", her goal would be R$ 33,000. Based on living costs, with six months (she works in a sector with high turnover), the goal is:

R$ 3,800 × 6 = R$ 22,800

That is R$ 10,200 less than the salary-based figure, and the fund still covers six months of essential living.

How long it takes to get there

How long will it take her to save R$ 22,800? It depends on her monthly deposit.

The timelines are rounded up: R$ 22,800 ÷ R$ 600 = 38; R$ 22,800 ÷ R$ 900 = 25.3, so 26 months; R$ 22,800 ÷ R$ 1,100 = 20.7, or 21 months; R$ 22,800 ÷ R$ 1,500 = 15.2, or 16 months. In practice it takes a little less, because the money earns returns while you save.

If Mariana follows something close to the 50/30/20 budget rule, 20% of R$ 5,500 is R$ 1,100 a month for the future. Putting all of it into her emergency fund, she gets there in about 21 months.

How to build the fund without giving up halfway

1. Start with a one-month goal. Saving R$ 3,800 feels doable and already covers most small surprises, like a repair or a doctor's visit. Then aim for three months, and only then the final target.
2. Automate on payday. Schedule a transfer to the account where you keep the fund as soon as your salary arrives. What is left at the end of the month is usually zero.
3. Physically separate the money. Keeping the fund in your everyday account is asking to spend it. Use another account or a separate savings pocket (many Brazilian banks call them caixinhas or cofrinhos) with a clear name.
4. Use extra money. The 13th salary (a mandatory year-end bonus for CLT workers in Brazil), your income tax refund, sold vacation days and bonuses speed things up a lot.
5. Track your progress. Watching the percentage of your goal rise is one of the best motivators there is.

Emergency fund or paying off debt first?

If you have expensive debt, such as credit card revolving credit or an overdraft, it makes sense to first build a minimum fund of about one month of living costs, and then focus your energy on the debt. With no fund at all, the next surprise goes back on the card and you go in circles. With a minimum fund, you attack the highest interest first and only then complete the remaining months.

Where to keep the money (summary)

An emergency fund needs three features: low risk, daily liquidity (you can withdraw within one business day at most) and returns that at least keep up with inflation. That rules out stocks, funds with slow redemptions and investments with lock-up periods.

The most common options in Brazil are:

• CDBs with daily liquidity: bank certificates of deposit, usually paying a percentage of the CDI, the interbank rate that most Brazilian fixed-income investments track. They are covered by the FGC, the deposit guarantee fund.
• Tesouro Selic: a federal government bond that follows the Selic, Brazil's benchmark interest rate, bought through the Tesouro Direto program.
• Interest-bearing accounts and savings pockets that allow daily withdrawals.

Rates change, so compare current numbers before choosing.

When to use it and how to rebuild it

Use the fund for things that are urgent and necessary. Ask yourself: "Without this money, would I have to borrow to solve this?" If yes, it is an emergency. A phone on sale, a last-minute trip and an expensive gift are not. When in doubt, run the purchase through a quick check of whether you can afford it without the fund.

After using it, make rebuilding it a priority, temporarily cutting back on wants if needed.

Review the size of your fund at least once a year and whenever something big changes: a move, a new baby, switching from a CLT job to contract work, starting a mortgage.

How Otto helps

Otto calculates your living costs from the real transactions in the accounts and cards you connect through Open Finance Brasil, and suggests an ideal emergency fund amount based on that history. On the Savings screen, you see how much you have saved, including your banks' savings pockets, and the percentage of your goal. And when you feel tempted to dip into the fund for a purchase, you can ask "Can I spend?" first.

Official sources and further reading

• Banco Central do Brasil: financial citizenship (in Portuguese)
• Fundo Garantidor de Créditos (FGC), Brazil's deposit guarantee fund
• Tesouro Direto, Brazil's government bond program
• Serasa: financial education (in Portuguese)