While at school they teach us how to make money, but it is even more important to be able to take care of them and manage them properly. Create a habit of building your assets.
At school and, of course, with family support, they taught us to read, write, count, make money, and more. But what they did not teach us is how to manage their finances. It’s important to focus on it from an early age. Abroad, it is common that they already have the subject “Financial Literacy” at primary schools. In Slovakia, the interest would be, but it has no one to teach for lack of qualified professionals or not enough money for it. While at school, they teach us how to make money, but from my point of view it is even more important to be able to care for and manage them.
What is the financial reserve and what it is for
Creating a financial reserve is important for the safe functioning of the household financial flow in the family. It represents the funds available to you in the event of an unexpected adverse event that may occur. Most of the time, you know your income that goes into the family budget, but it’s worse with your monthly spending. The best way to orient yourself in your expenses is to write them all on paper or on your computer. Divide them by category into regular (fixed), occasional, unforeseen … and at least the last three months.
Finance discipline is the most important factor. Don’t buy things “just” because you like it, think about it and plan more spending. Put your money forward and don’t use a reserve.
What should be the amount of the reserve
The key to orientation and firm grasp of your budget is to orient yourself in your spending. We used the “type of hand-to-mouth” excuses, all of which we were using. Yes, there are really difficult life situations when a person has almost no income and is dependent on help. But if we’re lucky to be healthy and have a regular income, that’s the time to think of “back door”. It is appropriate, even almost necessary, to have a financial reserve created, ideally, equal to a 6-month household expenditure. For many, this seems like an unattainable myth. If you are used to saving (“who saves me for three”), you will acquire the liberating feeling that will give you the financial reserve.
When to start
It is very important to start saving as soon as possible, even immediately, though in small amounts, but regularly. The creation of the iron reserve should be at least 10% of the revenue per month. Even if at least such an amount is not postponed due to the amount of income and expenses, it is not necessary to give up and create a habit of putting aside money. However, this is the creation of the “iron reserve”, which should be postponed as soon as you receive the income.
The worst thing is if you say you’re postponed until the end of the month if something goes up. But in this way you will not create a reserve because something unforeseen will still come and at the end of the month you will find that you have nothing to put aside. If you do the other way around, as I mentioned, and as soon as you pay the necessary expenses (such as a loan installment, SIPO, school, food, and so on), immediately deposit at least a small amount to your account where you won’t normally have a card. The reserve should not earn you a lot of money, but it must be available at any time (liquid) if you have to use it. If you are forced to reach this created reserve, you do not have to forget it as soon as you receive another income, complete it.
I already have a reserve, what next?
You say that I’ve already created a reserve, so what’s next. It is best if you make short money, medium and long, at the same time. Of course, as they let go of finance and it must be well proportionally distributed.
The reserve serves for a sudden but short-term loss of income. If for some reason you lose income for a longer period or lose your ability to work, this is covered by accident insurance, possibly associated with savings, which will cover your income. However, investment or capital insurance is already a long-term investment.
Another well-known old wisdom says, “Cover yourself with the feather you have.” However, even if the time of seeming abundance and the availability of everything around us, everyone at least “tries” to buy more than you really need, it is good to resist.
Learn to read and write correctly in your finances
So if you want to learn “read and write” with your own money, you must first check your spending. Most of us know exactly how much they earn, but considerably fewer people know exactly what they spend on their money. Even a small spared cost will bring prosperity. However, if you need some of your need to satisfy your loan, which is absolutely fine, you need to keep in mind another – and that the repayments of your loans and borrowings should not be higher than 30% of your monthly income.
Create a habit of building your assets. If you can’t give your own advice, look for experts who will help you with this and explain other important things about your finances, because the reserve just begins but does not end and many things are connected. The right financial plan is complex and you have to understand and keep up with it.