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Why you should have financial cushion?

Posted on:September 3, 2020

Yesterday I didn’t know how to manage an income. I thought it’s very complex to build a financial cushion, manage two accounts, invest money or just simply not live beyond the state.

I’ve made some simple steps to save money for my future. And if we want to talk about saving, I have one rule.

Don’t be stingy.

If I want to buy a new laptop? Why not - it’s my cash, I earn it. But not so fast, this expense shouldn’t be as fast as I wrote this sentence. I’ve rule, that if I think about it for about month (or less, but still not like to think -> buy in ten seconds), this says to me that I need it. It’s even better if this expense is helpful in earning money.

Why I need financial cushion?

Financial cushion guarantees you, that if you have smaller or bigger expenses and troubles at that time, you won’t have to take an loan to finance them. Pillows give you an opportunity to move on this hard time without any major perturbations. But imagine, that at this moment you don’t have savings - it’s a straight line to snare bank and living on credit.

That’s why financial cushion is like armor to help you go through financial problems easy way.

Ok, but how big it should be?

That’s a tricky question. My personal savings need to cover my normal life (without a job) for about half a year. But I’m single, living in a big city without any large monthly expenses. In a fast way, I can go back to my family’s house and cut my costs by about 50%. You can have a harder situation.

I think fit for everyone divisions should be:

How to do this right?

I’ve got a simple system to manage my incomes. We need two accounts:

But I strongly recommend splitting your financial cushion from typical savings for a target. Probably you need some kind of investment account, but be careful, because if you need this money, you could be able to use them in a short time.

But always remember.

Pay yourself first

If you want to build a financial cushion fast, you need to prepare a plan and stick to it. In my opinion, if you won’t pay yourself first a specified amount of money, sometimes you will forget to do it, or just pay a smaller amount for any reason. It’s dangerous. The best if you set up an automatic payment a few days after income goes to your primary account.

I hope you will get something from this post. We all need to be prepared to worst times than we expect they’re gonna be - it’s important.

Have a nice day.