At any moment you can be overwhelmed by a mountain of unexpected expenses. A broken washing machine, the repair of your car, a hefty fine and that’s it. To avoid getting in your hair with your hands, it is extremely important to create a financial buffer. However, how much of your paycheck should you set aside to avoid sleepless nights about it?
The National Institute for Budget Information, better known as Nibud, proposes a so-called Buffer calculator available to all website visitors. The BufferCalculator is an independent calculation tool that ”provides households with an idea of the amount it is wise to have on hand in order to be able to immediately pay for unexpected, larger, necessary short- and medium-term expenses”.
The buffer amount is made up of five components: replacement household effects, home and garden maintenance, car maintenance, car replacement, and unexpected expenses.
As an example let’s use a single person with no children in a rented house. For convenience we eliminate the modal income in use data from payroll service provider ADP equals 3,086 euros per month. We further assume that you own a second-hand car in the compact class.
With these data, the advisory buffer amounts to a total of 10,700 euros. This would allow you to absorb unexpected, larger, necessary expenses.
Set aside money step by step
Nibud recommends setting aside ten percent of your income each month to build up your buffer. If you keep saving 10 percent, you keep replenishing the buffer and that way you stay financially healthy. Nibud also recommends having the money automatically transferred to a savings account so you don’t have to think about it yourself. He also recommends taking stock at the end of the year to see how successful it has actually been.
Putting aside ten percent of your income obviously sounds easier than it is. Monthly costs can add up quickly. If you want to invest even part of your salary, for example, in cryptocurrencies such as bitcoin (BTC), you will have to be very careful with your money. Earlier today (inside link to my finance article today) you may have seen that watching your money could lead to tremendous wealth.