Financial airbag: how to save for a rainy day

Was it possible to avoid such a sad development of the plot and protect your family from lack of money? Yes, and a financial airbag could help with this – cash savings that are needed in the event of such force majeure circumstances.

Ivan’s story is not an isolated case. According to the All-Russian Center for the Study of Public Opinion (VTsIOM), almost a third of Russians have no savings.

A financial cushion is an untouchable amount that people set aside in case of job loss or other unpleasant surprises accompanied by additional expenses or a reduction in income.

Such a pillow is not a piggy bank that can be broken at any time in order to go on vacation, buy an expensive fur coat, or invest in a business project. This is an amount that will allow the family to survive difficult times or solve a sudden problem. For example, one of your family members gets sick and requires expensive treatment, your washing machine suddenly breaks down or your car is damaged in an accident, you have lost your only source of income… It is for such cases that “cushion” savings exist.

Each family determines the appropriate size of the financial airbag independently. It is considered optimal when there is a supply that allows you to live as usual for 3 to 6 months. During this time, it is usually possible to solve the financial problems that have arisen.

Although I heard from one very successful psychologist the idea that before engaging in risky activities (for example, investing somewhere or starting a business), a person must have an amount that allows him to live as usual for two years. So everyone here decides everything for themselves.

The general rule is this: the higher the risk of being left without a livelihood, the less stable the income of a person (family), the larger the size of the airbag should be.

The question arises: how to accumulate such funds? “Are you able to save money? There is an opportunity, but there is no money.” Sad joke. And not entirely fair. In fact, working people can save some amount almost always.

When thinking about creating an airbag, you first need to analyze your income and expenses. Otherwise, it will be impossible to calculate the amount of savings. Moreover, the expenses should take into account not only the monthly mandatory expenses “for living”, but also the expected payments, for example, expenses for compulsory motor insurance, for the school needs of children, for the purchase of clothes and shoes, for vacations or vacations, that is, for everything that will allow family to live as usual. It is clear that if an unforeseen situation arises, some expenses can be reduced, but ideally the cushion should be such that people can live through a difficult period without particularly feeling it.

It is very useful to review the airbag size at least once a year. Let’s say a child is born in the family and expenses increase. This means that the savings will no longer last for 6 months, but, say, only for 4. Therefore, they need to be actively replenished. Or, on the contrary, additional stable income has appeared (for example, from renting out housing), and the cushion is enough for a longer period…

How to save money is up to everyone to decide for themselves. Some people use the tools offered by banks: for example, they transfer part of their salary to a separate “piggy bank” account or set aside part of the income accrued on deposits. Someone forms a cushion from “unforeseen income”: amounts that were not taken into account in the budget in advance. These could be bonuses, fees, part-time jobs, repaid debt…

One family I know transfers 10% of any amounts that they each individually receive into a piggy bank. And some people save an amount of 10% of every ruble spent.

It would be wrong not to determine a fixed amount for savings. You can start with small investments in order to get used to saving and understand how this will affect your budget. Then, if everything goes well, gradually increase their size.

A separate question: where to store this money? The airbag should be protected from inflation, but at the same time provide prompt access to funds.

This means that it is not worth storing money for a rainy day in stocks, real estate, precious metals or other instruments that take a long time to convert into real money. Putting all your money in a regular jar or under a mattress is also not a very good strategy, because by the time the amount is needed, inflation may eat it up.

A good rule of thumb is “don’t put all your eggs in one basket.” They should be used. The best strategy is when you have some amount of cash and the rest of the funds are distributed among other instruments. Of course, it’s easiest when the financial cushion is collected in the currency of expenses, that is, in our case, in rubles. But taking into account the level of inflation, it is optimal if 50–60% of the amount is stored in national currency, and the rest in foreign currency. This will reduce inflation risks.

In addition to cash, which should not be kept in excess of your monthly needs, you can use bank deposits. Short-term deposits opened for one or three months are better suited, since if you need to withdraw funds from a long-term deposit, this may be fraught with loss of accrued interest. Savings accounts are also suitable, but you need to understand that the interest rate on them may change. You can use bank cards that charge interest on the remaining amount. But this option is suitable only for people who do not tend to make impulsive purchases. Otherwise, there is a high risk of spending this money if you suddenly “really want” something. Probably the best thing is a combination of different ways to store money.

Where can you find a financial cushion when it seems like there is none? Let me give you some specific advice on this matter.

Keep records of income and expenses. At the end of the month, you may be surprised to find out where your salary is going.

Refuse to take out loans, especially if the borrowed money is used for useless things or items that are far from essential.

Refinance your loans. Interest rates on loans are not constant. They usually change following an increase or decrease in the Central Bank key rate. If you see that market rates have dropped and you are servicing a loan at a higher interest rate, contact your bank or a third-party bank to refinance. It makes sense to do this if there is at least a year left until the end of the contract, and the expenses associated with refinancing will not cover the subsequent benefits of reducing monthly payments.

Use cash in stores more often. This allows you to better control expenses than with non-cash payments.

Avoid impulsive spending. To do this, you can try shopping with a list. Also, if you like something, you don’t need to immediately run to the checkout with it. Give yourself at least a day to weigh the pros and cons of such an acquisition.

Try converting the cost of an item into hours. For example, this phone will cost you two weeks of work, and this shirt will cost you two days. For some people, such exercises have a sobering effect, and they refuse unnecessary spending.

Remember the golden mean. In saving, as in spending, there is no need to go to extremes. If you spend everything you earn, sooner or later you may find that your standard of living will deteriorate due to lack of finances. But it’s also not worth becoming Plyushkin, counting every penny. This will deprive you of many bright experiences that could bring joy into your life.

Forming your own financial safety net is not as difficult a process as it might seem to someone initially. In order to start it, it is important to reconsider your philosophy, to understand that by saving money, you are not robbing yourself in the present, but helping yourself in the future.