Emergency fund
What it means
Cash set aside — separate from your investments — to cover three to six months of essential expenses, kept somewhere boring and instantly accessible, like a savings account.
Why it matters
Without one, a single bad month can force you to sell investments at the worst possible time just to cover rent. It's the step that comes before investing, not alongside it.
A worked example
Say your essential monthly costs — rent, food, transport, utilities, minimum debt payments — come to 12,000 pesos. A three-month fund is 36,000; six months is 72,000.
If you can set aside 1,500 a month, the three-month target takes two years to reach. That is not a failure of discipline; it is simply the arithmetic, and knowing it upfront is more useful than a rule that assumes the money appears quickly.
What people get wrong
The most common error is treating the emergency fund as an investment and putting it somewhere that can fall in value. The entire purpose of this money is that its amount is known and available on the day you need it — which is precisely the day markets are most likely to be down, because job losses and downturns arrive together.
The second error is the reverse: never leaving the emergency fund stage. It has a defined size. Once it is funded, adding to it indefinitely means holding cash that inflation erodes every year.
How this works in Latin America
Where inflation runs high, cash sitting in a current account loses purchasing power quickly, so the question of where to hold this money matters more than it does in low-inflation countries. Several markets offer short-term, government-backed instruments that individuals can buy directly — CETES in Mexico through cetesdirecto, Tesouro Selic in Brazil through Tesouro Direto — which are designed to be low-volatility and are widely used for exactly this purpose.
The thing to check before using any of them is the liquidity term: how many business days it takes to get the money back into your account. An instrument that pays well but settles slowly is not serving the function an emergency fund exists for.