A household financial reserve creates a solid foundation for unexpected events that can disrupt our family budget. Although the incomes of many people are more than decent, they often focus primarily on what they spend their hard-earned money on. Few have a good financial reserve. Therefore, when their unexpected expenses exceed their income, they have nothing to draw on. Let’s discuss together why it is important to have a household financial reserve and how to achieve it.
Why is it important to have a financial reserve?
Do you know how much money you should be putting aside? An operational emergency fund helps cover unexpected financial expenses that impact your household budget, such as a necessary car repair, washing machine repair, etc. This fund will cover a loss of income over a period of 1 to 6 months. This means we should have a reserve to cover our household expenses for six months.
Unexpected situations cannot be predicted. Therefore, it is important that we are prepared for such situations. This may involve minor expenses, such as repairing a refrigerator, or unexpected expenses caused by a sudden life event, long-term illness, job loss, etc.
What happens if we find ourselves in such a situation and do not have a financial reserve? A situation arises where we are selling off assets disadvantageously, borrowing from family and friends, or cancelling building savings. The ideal household financial reserve is six times all of our family’s monthly expenses. However, if it is higher, so much the better. If we spend 30,000 CZK (about 1,400 USD) per month on expenses, our household financial reserve should be at least 180,000 CZK (about 8,300 USD).
A household financial reserve represents certainty that will help us weather difficult times during a loss of income. We will set aside 10 to 15% of our income each month to create it. The financial reserve will not only ensure financial security during a loss of income, but we will also feel calmer.
Record of Expenses
We will create a detailed list of all items we pay out each month. We will not forget anything. We will record all expenses for housing (mortgage, rent), insurance, operational leasing, internet, telephone, children’s interest groups, food, toiletries, etc. This will help us gain an overview of our total monthly household expenses. If they seem too high to us, it may motivate us to reduce them. For example, by setting up a lower telephone plan or cheaper insurance. We will multiply the final amount of all our family’s monthly costs by six and obtain the amount that we should constantly set aside, and we will only draw money from it in necessary cases.
If we have an amount higher than six times the costs of our household, we can invest the funds in advantageous investment products such as shares or mutual funds.
Where to store a household financial reserve?
A household financial reserve should be liquid, meaning it is available as quickly as possible and in full. A savings account, which is managed without a fee, is suitable. Banks offer interest rates according to the current rate sheet. Transferring money to a current account is possible at any time and immediately.
Long-term household financial reserve
When creating a financial reserve, we also take into account our financial goals. If we want to buy our own home, create capital for financial independence, or secure a better future for our children, we will set aside funds to achieve these goals.
We assume that we will need this emergency fund no sooner than five years. Therefore, we will not leave these funds lying idle in a current or savings account, but will invest them. In times of inflation, it is not wise to have large sums of money in a current account, as we lose money each month and year.
It is therefore suitable to invest in shares (akcie), cryptocurrencies, bonds, government bonds, mutual funds (podílový fond) or property. It is ideal to invest in things you at least somewhat believe in and understand. Investing can then be enjoyable and you will also have an overview of it.
Household emergency fund in the Czech Republic
The figures from a survey published by Raiffeisen building savings are quite alarming. Statistics showed that 19% of residents have not saved any money. A further 28% of residents have an emergency fund of up to 20,000 CZK (about 920 USD). This sum is far from covering expenses for even a few months. Young people under 34 have the biggest problem with building an emergency fund.
We can start building an emergency fund almost immediately. If we have not saved any money, the sooner the better is a good rule to follow.
Emergency fund for businesses
If we are employed, our salary is the same each month. However, if we are self-employed, we should be more cautious and set aside a larger amount of money. It may happen that the revenue from our business is lower than we anticipated. Or we may need to buy new equipment or tools. It may also happen that we become ill. For such cases, it is always important to have sufficient emergency funds so as not to jeopardise the viability of our business.
While a short-term emergency fund serves to cover unexpected income shortfalls within a few months to a year, a long-term one accounts for predetermined financial goals. Funds can then be used for business development, equipment purchases, buying a car for business purposes, or purchasing property intended for business development. Medium-term emergency funds can be used, for example, in the event of an accident or long-term illness.
Savings versus investments
Even though we have a larger sum of money saved in a current or savings account, where it does not appreciate significantly, it is important to remember that an emergency fund serves primarily as savings that we have constantly available. We will not use these savings for investing, even if an investment seems very advantageous. Its return could take several months or years, and we could find ourselves in a situation where we need our savings very soon. We might then have to take out a loan with an unfavourable interest rate. Investing goes hand in hand with financial literacy. A financially literate person is someone who knows how to manage money and has put aside some funds.
Why is borrowing from a bank disadvantageous?
Banks and other non-bank institutions often benefit from unexpected events. They rely on the fact that a person who urgently needs money will take out a loan even with a very unfavourable interest rate (often over 10%), because they have no choice. And that plays into their hands. It is easy to control someone who does not have solid ground beneath their feet. Whereas a person with solid financial foundations has stability.
This is one of many reasons why it is worth building a strong emergency fund in a household. If possible, and if we find ourselves needing to borrow money, we will first ask family and relatives. They are often happy to help us and we will not have to pay an absurd interest rate.
A few tips on how to build a household emergency fund.
We create a household emergency fund primarily by setting money aside. We can also change our habits and save even more money as a result.
- Sell unwanted items and don’t buy more.
- Look for a part-time job.
- Don’t eat in restaurants.
- Find a cheaper provider for services, internet, telephone, electricity, gas, etc.
- Make a monthly overview of your income and expenses.
- Don’t spend money on unnecessary things.
- Save 10 CZK (about 0.46 USD) every day in a piggy bank.
- Only carry a certain amount of cash so you aren’t forced to spend too much.
- Plan food shopping carefully.
- Reduce car journeys and walk more.
- Read books that will help you better understand how money works.
- Don’t be afraid to save.
USD amounts are approximate, converted at the Czech National Bank rate of 21.80 CZK (about 1 USD) per USD on 2 October 2026.
