DO YOU HAVE SUFFICIENT FINANCIAL SAVINGS?
YOU SHOULD PUT ASIDE AT LEAST 10% OF YOUR SALARY EACH MONTH
Six times the monthly income – this should be the optimal amount of savings that everyone should have built up. However, the reality is different. More than half of us are not able to put aside even 10% of the income and thus create sufficient emergency fund. Read the tips of personal finance experts from PARTNERS GROUP SK on how to start saving simply today.
EMERGENCY FUND IS A NECESSITY
Saving is a part of planning the future. Relying on that we will compensate an eventual loss of employment, a costly repair of a car, or a purchase of a home appliance by a loan can be disastrous for our family budget. A temporary adverse situation should be covered by a financial emergency fund in the amount of at least six times the monthly income. We create it during a long period of time, throughout the entire working life. In case we need to use it for any reason, we replace the missing funds as soon as possible.
PUT ASIDE 10% OF YOUR SALARY EACH MONTH
Do you plan to save what remains in your account at the end of the month? Wrong. You should do the exact opposite and your savings or emergency fund should be the very first item to be paid from the salary. If you wait until the end of the month, it may happen that everything has already been spent on consumption and savings are unnecessarily postponed assuming that you live from pay to pay. You can easily switch yourself to a saving mode. Put aside 10% of your salary each month as soon as you receive it to your account, even when your income increases over time. This means that if your net income is € 800, put aside € 80 each month. If your net monthly income is € 1,200, set aside € 120.
REGULARLY DRAW UP AN OVERVIEW OF ALL YOUR REVENUES AND EXPENDITURES
Why do we not save? The most common reason is that we have not a single euro left of our salary to save. However, the problem should not be looked for in low income, but rather in excessive spending. This is best demonstrated by a detailed overview of financial flows in a household. It should consider regular monthly revenues as well as irregular annual revenues and expenditures. Examples include seasonal remuneration or bonuses at work, as well as irregular payments, such as motor third party liability insurance and motor hull insurance and summer or winter vacations. If you find it difficult to write down expenditures on a monthly basis, try making weekly overviews and sum them up at the end of the month. Take into account expenditures on meals, dressing, transportation, mobile phone, culture, entertainment, education and others. Expenditures that occur only a few times per year should be averaged by months. In this way you can get the best insight into your finances. You may find that you spend inadequately much on some items. You can redirect these funds rather to increase the emergency fund or to earn yield by investing them.
DO YOU HAVE ZERO SAVINGS SO FAR? INCREASE THE INCOME PERCENTAGE
If your net income is € 800, your emergency fund should be at least € 4,800 representing six times the monthly income. It takes half a year on average to find equally good or ideally even better paid job. Six months is also a sufficient time to complete eventual retraining for a better paid job.
Therefore, if you have not created any emergency fund yet, you need to start putting aside a higher amount than the mentioned 10% of your income. It is about creating an emergency fund for unexpected situations as soon as possible.
If you have managed to create an emergency fund higher than optimal six times the monthly income, it is the right time to start earning yields by investing money.
DIFFERENT SAVING TYPES
There are three categories of goals for choosing a saving or investment program. These categories incorporate, in particular, a time factor. It is not the same if you save for a vacation, for instance, or for new appliances, car purchase or education of your children or securing retirement
For short-term goals, which include the above mentioned vacation, car purchase or new appliances, a special saving bank account is sufficient, where you have your money outside the current account, but still “at hand”. It is ideal if you do not pay fees for account administration and if you receive at least a low yield (ideally covering inflation). Another option of saving for short-term goals is through a monetary mutual fund in investment companies.
Medium-term goals include saving for university studies of children or early repayment of a mortgage. When creating a medium-term emergency fund consider that you will need to have money available after several years, so you achieve higher return compared to saving accounts. Generally, fees cannot be avoided here. Variable forms of investing in bond or equity funds are ideal.
For long-term goals, such as retirement, the most appropriate are more fixed regular forms of investments. These are investments, from which we will have money available even later than in the first two categories and therefore you get the highest return with them. The most appropriate forms are either investments through investment companies or endowment life insurance.
