As there are different mediums for saving or investing, there are different types of savings. The best known is undoubtedly the one to be put in place as a priority: this is precautionary savings . But why tell you about it now? How can it help you? How much should you spend on it?
As its name suggests, the purpose of precautionary savings is to protect you from the hard knocks of life, at least from a financial point of view. The overall idea is to say that it is with this savings that you will be able to pay for the unforeseen expenses that will inevitably arise throughout your life. Thanks to this savings, you will neither have to limit your other monthly expenses nor change your rhythm of life . The money to provide for these hardships in life will be warm on the medium of your choice, probably a booklet A or similar for its ease of transiting from and to your current account.
You will only have to draw on this precautionary savings to, for example, buy a new washing machine when the old one has given up the ghost after a few years of good and loyal service. This savings will save you from having to eat pasta for several months 😉 or from having to use expensive consumer credit or the like!
Reading the first paragraph, you might rightly say to yourself:
Let’s start by answering the second question. The amount to be set aside depends on several parameters that are personal to you : incompressible monthly expenses, fear of risk, etc. I will not go into detail here on all the subjects that would need to be taken into account to identify the right amount to save. , but in general, having 3 months of monthly charges in reserve seems a good average to see coming.
To build up your precautionary savings, the logic is very simple. Set aside, each month, a small nest egg, which over time will constitute your precautionary savings. Two tips on the subject:
The purpose of precautionary savings is to reduce the effects of life’s hard knocks, financial of course. This can for example be the sudden loss of one’s job or the necessary purchase of a new car. As far as I am concerned…
Do you know the law of series? Applied in a pessimistic way, this Murphy’s law, or law of maximum hassle (pardon me the expression 🙂), consists in chaining in a relatively short period of time a large number of worries of all kinds. My wife and I recently had the privilege of experiencing a nice wave of it… I won’t detail everything here, some points that are more personal or of little interest to be shared, but here is a little anthology. For a few weeks/months, we have therefore had the privilege of chaining, more or less out of order:
Obviously, each event taken individually is not more serious than that and has no potential impact on our daily lives. But taken end to end, the expenses generated quickly amount to several thousand euros ! All this led me (no pun intended with the automotive events described above… 🙂 ) to remember 2 important things to share with you:
Beyond the fact that my wife and I had to empty part of our cash reserves, this precautionary savings allowed us each time to put these little strokes of bad luck into perspective . Finally, she allowed us to tell ourselves that all this was only material and financial. And as everyone knows since x-files, the important thing is elsewhere! 🙂
For your part, have you set up precautionary savings? Have you ever used it?