Budgeting, Savings, and Commitment: Budget coach Carolyn Foss hears from her clients every day how hard it is and what people struggle with. She’s sharing her best tips this summer. Today: a financial barrier.
“How many months can you go forward if your income is to disappear completely?” , I asked the couple sitting in front of me. A woman looks at her husband with pain in their stomachs, and they have to admit that they cannot last more than two weeks.
Of course it’s a stupid question, because there’s little chance that the two salaries will ever completely disappear. The guy asks me, “Okay, two weeks of savings might be a bit low, but what should a normal amount be in a savings account?”
We save 10 percent of our income, but we still live from payment receipt to payment receipt
How much money do you need to keep to be safe is one of the most frequently asked questions in my practice. “I read somewhere that you have to save 10 percent of your income, and we’re trying to maintain that situation,” he continues. “But we still live from pay slip to pay slip.”
Personal buffer
My opinion? What you need is very personal. In many cases, 10 percent is too little. Let’s say you have a net income of €3,500 per month as a family. Then this means savings of 4,200 euros per year. You can only have this for one month, if your income drops. So never accept standard amounts and percentages blindly.
“You will first have to decide how much security you want to build,” she explained. “With a home you have more bills for maintenance than you have when you have a rental home. You also have to factor in unexpected expenses, like unpaid doctor bills or a broken washing machine.” The couple also owns two cars. I ask “Are you able to repair or replace it without taking out a loan?”
Make sure you have approximately three to six months of expenses as a buffer
It remains quiet for a long time. These are those painful moments when people know for themselves that things have to change. I will stop asking questions. “I would never recommend a fixed amount to keep. Make sure you have about three to six months of expenses as buffer. But you have to decide for yourself what makes you feel good, they are just guidelines.”
When we determine the required amount together, we will consider the best way to achieve this. This is the best part of my job: seeing where the possibilities lie within the budget. I doubt if my clients liked this part more than others.
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