Saving & Investing
Lonneke de Kroon
Feb. 13, 2023
minutes reading time
The washing machine that breaks down, an MOT that gets more expensive or that expensive dentist bill. Unexpected expenses are never fun, especially when you don't have the money readily available. For such cases it is useful to have a financial buffer. But how much money do you need and how do you build that buffer?
A buffer is your financial teddy bear. It's a bit of money you have in reserve for when something unpleasant happens. Like a sudden bill or an unexpected expense. Having a buffer makes you feel safe. After all, you won't have to worry about financial setbacks. This is money in your savings account that you can use for unexpected expenses. Like your laptop that died because you threw a cup of coffee over it. Stupid, as you know yourself. And something like that always comes just at the wrong time, too. But you have to buy a new laptop or you won't be able to work. In such cases your buffer is the solution. A buffer can also be ideal for unexpected expenses. Is your sister getting married in Tuscany and you're invited at your own expense? If your buffer is ample enough, just do it.
In life, there are always unexpected twists and turns. You lose your job, crash your car, or drop your phone. With a financial buffer, you always have money on hand. That way you don't have to borrow money and you don't immediately get into money trouble. So a buffer gives you peace of mind. At the same time, a buffer gives you more control and freedom. In case of unexpected expenses you don't have to eat peanut butter bread for weeks.
How big your buffer should be is different for everyone. Do you have only yourself to manage, or do you have a family to care for? Do you have a mortgage or do you live in rental property? What are your fixed expenses and how much money do you spend each month? All questions that determine how much money you need. The larger your buffer is, the more security you have. After all, with more money behind you, you can take more hits. Ideally, you should have 3 to 6 times your monthly expenses behind you. Via the buffer calculator you can calculate how much spare cash would be ideal for you.
But how do you get such a financial buffer? The answer is as simple as it is logical: one step at a time. You build your buffer. Start by opening a savings account or create a separate pot under your existing savings account. Then set aside a set amount of money each month. To see how much you can save, first make a list of all your income and expenses. This will show you what you have left over and what you can set aside. From now on, have this amount automatically transferred to your savings account. That way you won't forget and saving will be automatic.
In general, you can save 10% of your income. If you can't, see what you can save on. Maybe you have all kinds of subscriptions you don't do anything with. Or you spend ridiculous amounts of money on coffee on the go. These are all expenses that you can easily save so that you have money left over to save. For helpful tips, also read our blog on saving in your household! In the beginning it may be difficult to save money consistently. But remember that every euro saved gives you more freedom and independence. As you watch the amount in your savings account grow, it becomes more and more fun.
When you leave all your money in your checking account, there is a temptation to spend it on daily shopping anyway. So always try to put your buffer in a separate savings account. That way you can stay away from it, but still access your money when needed. Don't make the amount you save automatically too high. Of course, you shouldn't be short of money every month, because then you will still withdraw it from your savings account. So take a good look at what you can spare and keep in mind that you have money left over to eat out or buy something nice once in a while. Also important; do not invest with your buffer! You need the buffer for when the chips are down. You don't want to take risks with that money. If you have used money from your buffer, replenish it as soon as possible. Save a few extra months, so your buffer stays in order. If you receive a tax refund or another financial windfall, put this money directly into your savings account. That way your buffer will grow extra fast.