These five steps will provide you with a financial cushion in the event of an emergency.
The certified independent financial advisor, CEO of the consulting company Prime-Consult LLC, had to say this. “In my practice, I often come across the fact that people do not have savings. They live paycheck to paycheck. In case of unforeseen situations – loss of work, car breakdown, failure of household appliances, illness – they do not know what to do, where to get money”.
There are several options for solving the problem; borrow from friends, take a loan from a bank or microfinance organization at a high-interest rate, or use a reserve fund.
The reserve fund is a financial safety net, a nest egg that is always at hand.
Let’s consider its creation using the example of a family with the following initial data:
- monthly income – 80,000 rubles;
- monthly expenses – 60,000 rubles;
- annual vacation costs – 120,000 rubles (10,000 rubles per month);
- free balance per month – 10,000 rubles.
1. Calculate the size of the reserve fund
The reserve fund size is the amount on which a family can live for three months (during a crisis – six months) without changing the usual way.
The average monthly family expenses in our example are 70,000 rubles (current 60,000 + 10,000 for vacation). Therefore, the size of the reserve fund will be calculated as follows.
- 70,000 × 3 = 210,000 (rubles) – for three months;
- 70,000 × 6 = 420,000 (rubles) – for six months.
2. Determine the number of monthly deductions
Usually, deductions are 10% of income, but they can reach 15-20%. In our example – 8,000 rubles per month.
3. Choosing a bank
Criteria of choice
- It is included in the top 20 banks in terms of net assets.
- Member of the deposit insurance system.
- Has been on the market for over 10 years.
4. Choosing a deposit
Basic requirements for a deposit.
- The minimum amount for opening is 1,000 rubles.
- The possibility of replenishment.
- Partial withdrawal is possible.
- Monthly interest calculation.
5. We open a deposit and make monthly contributions
An alternative to a deposit can be a profit card, provided that it is not the main payment card.
A profitable card is a bank card on which interest is accrued on the account balance. Otherwise, it is no different from the usual. Compared to the rates on deposits, the card’s interest rate varies from 5 to 7.5% per annum. Unlike a deposit, you can use the funds on the card at any time.
We form the reserve fund in the currency of basic income – rubles. Add other currencies as desired – dollar and euro.
In our example, after two years of regular deductions, there will be 210,000 rubles on the account. This is the minimum required.
We continue to make contributions further until we accumulate 420,000 rubles.
Also read: Kakeibo: How to Save and Spend Money in Japan.
The refrigerator, the TV is broken – the reserve fund will come to the rescue. Lost your job – you will have the means to live until you find a new place. The fund’s money can be used as a stash when buying clothes on sale, travel vouchers, train or air tickets, and much more.
Having spent part of the money from the reserve fund, it is necessary to replenish it in the future until the required amount is reached.
The reserve fund is only the first step to financial independence and capital creation. It won’t solve all your problems, but you will get some financial protection.
Adapted and translated by The Cop Cart Staff
Sources: Life hacker