Financial airbag: definition, size, how to create and where to store

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Experts say that savings can be made at any level of income. Moreover, saving money is not only possible, but necessary. Any person, regardless of income level, may experience force majeure situations: loss of a job, illness, urgent car repairs or replacement of large equipment - there should always be money for a rainy day.

Studies show that people who have certain savings feel psychologically more comfortable and confident in the future. Recently, the issues of the financial airbag have become more and more relevant for modern people. What it is, how to start saving and what is the optimal size for the average Russian family - these and other questions will be discussed in this article.

What is this?

In simple words, a financial airbag is accumulated funds, various kinds of savings that will help a person solve his problems in a difficult moment of life. That is, its goal is to quicklyinsurance of its owner or members of his family during the period of force majeure, allowing him to maintain his usual way of life without any critical restrictions.

Why is it needed?

As noted earlier, the main reason for creating a family's financial airbag is to protect against unexpected loss of basic income. Nobody is immune from this. Anyone, even the most highly qualified specialist, can lose his job. In this case, to restore the situation, it takes time to find a new job. Finding it is not always easy and fast. And the costs don't go anywhere. It is the previously deferred savings that will help to stay “afloat” while a person is looking for a new source of income.

It is during such periods of life that a person most often goes to extremes, for example, after some time looking for a job, in the absence of worthy offers, he gets a job at a less attractive or low-paid position, which in itself worsens the previous standard of living. This is due to the fact that there is no time and money to look for a decent option. The consequences of such a state sometimes have to be raked for more than one month. In the case of those who have accumulated a financial airbag, this most likely will not happen. Such people will not have to get into debt.

The main thing is to start saving

In reality, there are not so many options on how to create a financial airbag,because money never comes out of nowhere. To start saving, you will need to either cut your spending or increase your income.

One of the easiest and most common ways is to deduct 10 percent from your salary. Although it is worth recognizing that this method does not work even on paper, because in order to create a financial airbag for one month, a person will have to accumulate money for 10 months, and for one year - 10 years. But here it is worth noting that savings should not be the goal of life. Therefore, this method is inefficient, because, in addition to everything, a person still needs to earn money for a car, a house, raising a child, etc.

Experts also recommend reconsidering your expenses, responsibly approaching the issue of personal finance and strives to allocate a larger percentage for your savings. Efforts should also be made to create an additional source of cash flow to the family budget, which in the future may become the main source for savings.

How to calculate a family's financial airbag?

First of all, it is necessary to calculate the income and expenses of the family. According to statistics, many spend exactly as much as they earn. The recommended amount will be the amount of accumulated money, which will last from 6 to 12 months, provided that there is no permanent source of income.

To determine the amount, you need to calculate how much money is spent monthly on food, utility bills,transport, hygiene products, and if there are children in the family, you must also take into account the costs of kindergarten, school, etc. For an easier way to calculate, it is recommended to write down all the funds spent by the family during the week or month, while it is important not to forget that in addition to regular expenses, there are also irregular and inevitable expenses, such as buying clothes, shoes or car maintenance.

After the analysis, it is quite easy to calculate the size of the financial airbag. To do this, you need to take your monthly income and multiply it by the number of months. You will get the minimum amount of savings that you need to strive for.

Formation features

There are three basic principles for creating a "reserve fund":

1. Inviolability. It is strictly forbidden to spend the deferred money for other needs that are not provided for by the purpose of creating savings. It is best to initially determine for a situation where you can use the funds of the financial cushion.
2. Quick access. As soon as that important moment has come, in order to use the money supply, a person should be able to access his accumulated funds in a short time. For example, you wouldn't have to sell real estate.
3. Inflation protection. A convenient option is to open a long-term replenished deposit in a bank at interest.

How and where to storemoney?

According to the second principle of creating a financial “cushion”, the accumulated funds should be in quick access, so it is recommended to keep money in the bank on deposit with the right to withdraw at any time. This will not only provide an opportunity to quickly use the funds, but also save the financial airbag from inflation. When the amount of money becomes quite impressive over time, it is best to distribute savings accounts, rather than keeping everything in one bank.

Another important note is keeping money in a highly liquid currency. This currency can be the dollar or the euro. According to analysts, there will be no serious problems with the implementation of these currencies. In addition, they are much less subject to depreciation than any other monetary unit, such as currencies in the CIS countries. Therefore, the choice in this situation will be quite obvious.

In addition to the main purpose of satisfying your physiological needs and paying your bills, in unforeseen situations, the airbag acts as a psychological protection. A person who knows that he has the right amount of money in his bank account will feel financially calmer, unlike those who live only for one day.

Reserve fund for borrowers

As practice shows, the creation of a financial cushion for loans is a prerequisite for the borrower. After all, in the event of force majeure situations and loss of income, you can easilyget into a serious debt hole, which will lead to a damaged credit history, litigation, confiscation of collateral, etc. A person who has taken on debt obligations must have several payments in reserve so that in which case they do not stop paying regularly under the contract.

Financial airbag for a businessman?

In business, as elsewhere, there are "black days", and much more often than the average person. Savings play an important role for self-employed people. They act as a kind of buffer. It, in turn, will allow the entrepreneur to take risks in order to obtain greater benefits. After all, a person always feels much more confident when he knows that he still has a reserve amount of money in a secluded place. And in the event of a bad deal or an erroneous choice of goods, it can always be put into circulation.

But it is not recommended to get carried away with this, otherwise the reserve fund will lose its definition and simply turn into assets. At the same time, the total capital of assets will, of course, increase, but financial security will be at risk. At the same time, savings can save entrepreneurs in the most difficult situations, especially if everything is already lost. In most cases, people who are in business approach the issue of renewing a lost fortune very quickly and professionally, because they already have proven connections and knowledge accumulated over the years.

Conclusion

Financial pillow, created according to all the canons,will enable a person and his family not only to save themselves from starvation in the event of a job loss or other unforeseen situation, but will also allow them to lead a very normal life for plus or minus 6 months. When a person has an untouchable financial reserve, he will feel confident and secure, and a sudden situation in the form of a car breakdown or flooding by neighbors will not be able to unsettle him, because you can always count on plan B.

It is worth remembering that, having accumulated the necessary amount, you cannot stop, because no one knows whether the assumptions for the future will be correct. Saving money should become a habit of any person. Indeed, in fact, force majeure situations do not have to be unpleasant, perhaps a person with the help of these reserves will be able to fulfill his dream.