There are countless reasons why you may suddenly find the need to utilize capital; damage to your home or the family car, to pay a bill or to deal with a legal dispute. The price of not being able to deal with such an event is often a great deal higher than it would be if you had a safety fund in place and could absorb the costs immediately.
So, putting capital aside that will allow you to deal with unexpected events makes good sense and can save you money.
Belt and Braises
A belt and braises approach to managing your finances will mean that you can live more comfortably, with less stress and with greater peace of mind. All it takes to do this is a little foresight, some planning and then establishing a routine.
Maybe, on the face of things, this sounds rigid, unadventurous or even boring, but the reality is that having a sensible structure in place for the financial aspects of life leaves you with a lot more freedom to enjoy yourself and to grow.
Secure a Strategy
Your financial strategy begins with a “deep dive” into the money you have coming in and going out of the bank each month.
Typically, you start by listing all the bills that need to be paid each month and calculating a total – don’t forget to factor in money for food and fuel for your vehicles. Once all essential monthly expenditure has been added up, then take that from the figure for your total monthly income.
What remains is the amount disposable money you have each month and what you do with this is paramount to your financial health and wellbeing.
Savings and Safety Funds
Depending on your personal circumstances you may want to allocate some of your disposable money for savings that can be used for things like purchasing property or your children’s education.
In other words, capital for planned projects, maybe a holiday, or future costs of living. It may well be that for the time being this money is invested and so continues to work for you while not being used.
Then there is the all-important safety fund, different from your savings pot, as it is for unexpected costs. A leaking roof that requires fixing or something more serious that requires professional legal assistance could be just around the corner.
Keep this separate from your savings, preferably in a bank account where it can be accessed easily.
If possible, a minimum of 30% of your monthly disposable income should be set aside, 20% for savings and 10% for your safety fund. Once you have established a routine, you won’t miss the money you have set aside and you will have peace of mind.
Reward Yourself
It is important that you reward yourself for all the hard work you do and the responsible way you go about managing your finances.
The money that is left over after all outgoings have been accounted for is yours to enjoy yourself – visit a restaurant, take daytrips or buy gifts for loved ones. All the while knowing full well that what you are spending has been accounted for and knowing that if you run in to trouble, you have the reserves you need without having to compromise, beg, borrow or steal.