What is an emergency fund? Why is it essential before you start investing?

Before you start investing, there is a fundamental step that many novice investors overlook: having an emergency fund. This financial cushion can protect your wealth while allowing you to invest more calmly, avoiding impulsive decisions that could affect your savings.

To help you understand what an emergency fund is and how it can support you, we have prepared this complete guide. Here, we focus on its definition, how much you should have, where to keep it, and how to integrate it into your investment strategy.

What is an emergency fund and what is it for?

An emergency fund acts as a “cushion.” It is capital reserved exclusively for financial contingencies, such as:

• Loss of income
• Medical expenses
• Urgent repairs
• Family or household emergencies

Its main goal is clear: protect your financial stability and avoid having to resort to debt or selling investments at inopportune times. After all, no matter how many savings we have in our bank account, unexpected events still happen.

In this way, having an emergency fund is like installing a financial seatbelt: it won’t prevent all accidents, but it reduces the consequences.

How much money should my emergency fund have?

When thinking about the right emergency fund for you, it’s important to note that the required amount is not an exact figure. It depends on your monthly expenses and personal situation.

• 3 to 6 months of expenses - Recommended for people with stable income.
• 6 to 12 months of expenses - Best option for families with children, freelancers, or those with variable income.

To make it simpler, here’s how you can calculate the perfect emergency fund for you:

• Add up your essential monthly expenses (housing, food, insurance, transport…)
• Multiply by the number of months you want to cover
• Adjust according to your job stability and personal risk level

For example, if your monthly expenses are 1,500 euros, a 3-month emergency fund should be around 4,500 euros.

Some prefer to have a fund covering 1 to 3 years of personal expenses, providing greater security against unexpected events.

Benefits of having an emergency fund before investing

• Avoid selling investments at the worst time - If an unexpected event occurs, your fund allows you to cover it without liquidating assets when their value is low.
• Reduce financial stress - Knowing you have a cushion allows for more rational and strategic investment decisions.
• Invest with peace of mind - With the fund in place, you can explore more profitable investment opportunities without compromising your stability. An example is investing in bills or promissory notes from companies through Inversa, with short terms and clear returns.

We recommend checking our article on how to generate passive income with Inversa to see how to complement your fund with secure investments.

Where to keep your emergency fund

The key is to keep your fund easily accessible and low risk, avoiding products that fluctuate or lock up your capital. Some of the best options are:

• High-liquidity accounts - Money available instantly, without risk of loss.
• Short-term deposits - Low but secure returns, available within a few months.
• Safe alternatives within the real economy - Invest part in bills or promissory notes from Spanish companies, generating returns while keeping sufficient liquidity.

Integrating your emergency fund into your investment strategy

Investing safely ensures your emergency fund is not only secure but can continue to grow to withstand unforeseen events. Recommended steps for integrating it:

• Prioritize your fund before investing - Cover emergencies first, then allocate the rest to higher-return investments.
• Diversify your investments - Combine fixed income, variable income, and bills or promissory notes to balance safety and returns.
• Gradual growth - Once your fund is secured, you can gradually increase exposure to higher-yield products, following a clear strategy and risk control.

Start protecting your savings today with Inversa

Having an emergency fund is essential to invest safely and effectively. It allows you to:

• Protect your wealth against unforeseen events
• Make rational financial decisions
• Generate returns safely from your savings

Inversa provides tools to combine safety and profitability: from short-term funds to investments backed by Spanish companies, all designed to make your money work without compromising financial stability.