I always make sure that my spare tire is inflated.
I always make sure I have puppy poo-bags at the park.
I always make sure I have long-life milk in the pantry.
I always make sure I have another toilet roll in the bathroom.
There are things I always have on hand should I be ‘caught short’.
But, what happens if I can’t pay a bill? What if I don’t have the money? I never really needed a backup before (I always had the ‘Bank of Dad’ ready to bail me out at a moment’s notice!). It’s about time I made sure I can cover myself should I receive any financial surprises.
“But I have a great budget – I don’t need a backup”. Do you really want to learn this lesson the hard way?
Some months may be easy to budget for. Expenses might equal your estimates exactly.
But what if you forget to budget for Nana’s birthday present? An emergency dentist appointment? A Bucks night with your best friend? Your car breaking down? New school shoes?
I like to operate on the 10% rule. I think a buffer of 10% of my yearly wage should be enough to cover any ‘surprises’.
For example: If you earn $50,000 a year, you should have $5,000 put away in a bank account where it’s easily accessible. If you earn $200,000 a year, your average expenditure is likely to be higher than the previous example, so $20,000 should cover any problems (it’s still 10%).
The point of the financial buffer is to keep your existing saving on track. You have that money put away, it’s safe and ready, should anything happen.
This way, should you need to draw on it; you will not sacrifice any savings you have kept for a specific goal.
And you’ll sleep better at night…