How to Create a Financial Safety Net That Will Help You Survive (Almost) Anything

Many of us have thought about how to save money to build a financial safety net, but almost no one has thought about where and in what form to store it and what it can be used for. We will try to clarify these aspects – here are the rules you need to know.

As financial planner Lauren Anastasio explains, it’s not enough to say, “I’m trying to save.” When it comes to a strategy for creating a financial safety net, you need a very specific goal: choose it, write it down, and work to achieve it. When you complete the task (overrun it, get close to it, fail the mission completely), the selected landmark can be adjusted. But any advice on how to save money in an emergency starts with the basics: having a goal.

“When people forget what they’re trying to do, they often derail and spend instead of save,” says Lauren. A goal helps maintain motivation in any area of ​​life: to maintain a diet, you need to know how many pounds you want to lose, and to build a financial reserve, you need to decide what specific amount you plan to put in. side – in general and per month or any other period you choose.

To know how to build up a cash cushion, you need to decide on its size. According to Lauren, the “timeless classic” has long been an expense of three to six months: as practice shows, this is the optimal level. It makes no sense to lower it, but you can increase it – for example, if the only earner in the family is self-employed or suffers from a chronic illness that can make him incapacitated for a long period.

Do you understand that you cannot raise enough money to provide financial stability for three to six months? According to Lauren, this is no reason to give up and not save at all: any savings are better than none.

Creating a crisis fund by placing the money in such a way that it cannot be withdrawn at any time is one of the mistakes people make when creating a cushion. As Lauren explains, it’s imperative to have quick access to finance: a deposit that can only be withdrawn after a year won’t help in the event of redundancy, sudden illness or housing problems .

From Anastasio’s perspective, the best way to maintain financial independence is to keep your money in a savings account, which provides quick access to funds while allowing you to earn an income and offset the effects of inflation. “Find the highest rate possible – this is obvious advice for creating a crisis fund, but it works,” says the expert.

If you forget why you need an airbag, you risk losing it. “Savings have a purpose: remember, it’s to help you stay on track. A crisis fund should keep you afloat during tough times. If you spend that money on something else, like a vacation or a wedding, you could find yourself unprotected in the event of a disaster,” says Lauren.

Simply put, a sale or a strong desire to acquire a new smartphone is not an emergency. This does not mean that you do not have the right to go shopping or buy a gadget – just set aside money separately for these purposes and do not touch the pillow, which probably wasn’t easy to create.

Have you calculated how much you can save in a month without turning your life into a joyless asceticism and opened a savings account? Don’t give in to the temptation to transfer what’s left of your salary at the end of the month, do it the same day you receive it.

Read also: How a family can save on groceries without depriving themselves of anything

Did you manage to sell your old table on Avito? Did they give you a bonus unexpectedly? Have you lost your part-time job? Won the lottery? Did you receive a cash gift for your birthday? A good rule of thumb is to allocate 70% of unexpected income to an emergency fund if you haven’t yet reached your goal. Has your emergency supply already reached the level you set? Then the proportion changes: “stuff” the pillow with 30% of the unexpected “profit” and spend 70%.

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