How to have your financial backup at all times – 5 simple rules that will help you
Financial backup, sometime called emergency fund is the sum of money you want to keep in case something unexpected happens. There is 5 rules you want to follow when dealing with emergency or back fund:
You need to understand what the backup is and use it only in these defined events. The unexpected should be any event that stops you from making money such as:
- job loss
- serious sickness
- family emergency
- any other serious event that you can not predict
You want to set up clear rules what the emergency is not:
- It is not car repair
- It is not buying latest model of the car or game console
- It is not the dress for the unexpected party.
- It is not meal you have to go and you did not plan
You need to set up the right amount of financial back up:
- It should easily allow you to survive without any income from 3 to 6 months, so for the UK average family with the average mortgage is should be around £10 000 – £12 000. It does depend on your employability, skills and lifestyle but generally when you have no income you should limit your spendings drastically
- You should also keep the reasonable credit line and when something is coming such as redundancy or illness you want to start using this line such as interest free long term credit cards or interest free loan in order to keep the financial back up intact.
- even when you have your 3-6 months survival fund keep adding to id every month. Adding a very small amount will increase your financial security
Understand what your basic needs are and spend back up in emergency situation
Never use the backup for anything else.
This is the most important rule and crossing this line will put you at risk. You can not even borrow you backup nor use it as the overdraft. Make sure that money is untouchable at any time
Following these 5 simple rules will help you to feel more financially secure and independent.