The events of recent years clearly tell us that each person needs to have a certain reserve of free money that can be used in case of force majeure. Experts call such a reserve a financial airbag, and they give their advice on how to accumulate it, in what amount, and how to store it. We have collected the best tips and combined them in our review.
Financial airbag: what is it and why is it needed
Someone may consider the savings strategy a relic of the past and the lot of older people who are accustomed to saving up for important purchases for many months or even years. Young people preferred to use a credit card or consumer credit to buy the desired product or service here and now, and pay for it later.
Such a strategy is quite viable in the event that a person has a stable job, he can predict the level of income for the next six months or a year, and therefore calmly takes loans, knowing for sure that he will be able to repay them.
In Russia, such a “calm” period lasted for quite a long time, but everything changed in the pandemic year of 2020, when, due to the virus and the restrictions associated with it, many people, if not completely lost their jobs, then lost a certain part of their income. Even then, many financiers started talking about the fact that every person in the world needs to form some kind of cash reserve during his life, which will help to cope with such unforeseen situations.
No one could even guess that people around the world will be sitting at home for several months without the opportunity to go to work, and at the same time, needs, loans and obligations have not gone away. And that after just a couple of years, a new crisis begins in our country – now associated with sanctions and the departure of foreign companies. And again, people will lose their jobs and find themselves in a stressful situation due to loss of income and lack of savings.
So what is a financial airbag? This is a pre-accumulated amount of money that can help a family or single person survive for a while – even if he loses his main source of income.
Why do you need a financial cushion:
- to stabilize the life situation during financial difficulties without getting into debt;
- to be able to calmly find a new job, and not grab the very first offer that a person will be forced to agree to due to lack of money;
- to maintain a comfortable standard of living until a person finds a new source of income.
In other words, a financial airbag allows you to insure against various troubles.which, according to the law of meanness, always arise at the most unexpected moment. For example, a broken phone screen, a broken kettle and the birthday of a loved one do not create big problems individually, but in a situation where there is no money at all, problems accumulate and the need to urgently find a large amount can make you nervous.
And here a cash reserve would be very useful just for such a case – it will allow you to pay for all the necessary purchases. That is why it is so important to create a reserve fund that will help you and your family to overcome the difficult period painlessly without getting into loans.
What amount of savings will be sufficient
How much money you need to have in reserve – there is still no consensus on this issue. Some financiers recommend having savings that will be enough for a year and a half, others look at the situation more realistically and call a period of 4-6 months.
In fact, everything here is very individual, because each situation is completely different. For example, if a person lives alone and in his own apartment, he will have the same needs and amount for a comfortable life, and if we are talking about a family of 3-4 people who pays for a mortgage apartment, kindergarten, school and mugs, then the amount for maintaining the usual standard of living will be completely different.
How to determine the required amount of savings:
- You need to use the numbers of your family budget. If you haven’t started it yet, now is the time to start doing it. There are a variety of applications and websites that allow you to automatically take into account income and expenses, distribute them into categories, arrange them into convenient schedules, etc.
- Based on the received data in a couple of months, you can determine those expenses that are of priority importance – those that cannot be abandoned. As a rule, these are housing and communal services, products, communications, transport, repayment of loans. These expenses need to be summed up, and add 10-15% to them for unforeseen circumstances in the form of a flat tire, a sick tooth, or a child who has grown out of all the old clothes over the summer.
- Multiply the resulting amount of mandatory expenses for the month by 4-6 monthsand that’s how you get the amount you need to have for a rainy day.
Initially, the amount may seem very large and unrealistic to you. But if you follow certain rules and instructions, learn how to properly budget and take a responsible approach to the issue of creating savings, then relatively quickly it will appear in your hands.
How to form and store an airbag
Some believe that only wealthy people need to create an airbag, and if the salary is already small, then there is simply nothing to save from it. But in fact, this is an erroneous opinion – just if the income is small, then it is precisely such people who need to create reserves in the first place.
How to do it: The easiest option is to set aside a certain amount or percentage of income during periods of at least relative stability. You receive an acceptable amount for 2 months, which means you can already postpone a little. The main thing is to do it regularly and with any earnings, and not wait for better times that may not come.
There are three savings options:
- Set aside a certain amount. It is suitable for those who receive a fixed salary every month at a predetermined date. You can determine that it is comfortable for you to save 5-10 thousand, and on the very first day of your salary, transfer this amount to a separate account. Some banks have services that will do this for you.
- Transfer a fixed percentage. This option is suitable for people who receive different incomes at different times, depending on seasonality, employment, market conditions, etc. It will be most comfortable to save about 10-15% of any income you receive. The tactics are the same – if you receive money, immediately put aside a part of it to a separate account.
- Auto-refill account for payroll clients. For example, the piggy bank service at VTB, Sberbank and Alfa-Bank.
Where to store the financial airbag? The best thing is in a bank on a savings account or a deposit with the possibility of replenishment without restrictions. In this case, you will not only have a reserve of money, you will also receive a passive source of income in the form of interest that the bank will charge you for placing money in its accounts. This means that you will accumulate the required amount even faster, and you will be able to increase it.