How to build a financial reserve

It may be that you really want to buy something or do something that requires an amount of money that you don’t have at the moment, and then you need to understand this financial constraint and plan to accumulate the necessary amount for some time until you reach your goal.

So far so good, you just want to fulfill some specific desire, but imagine a situation where you lose your source of income or need to pay a large amount of money all of a sudden, like for some medical need . No one wants to be in that kind of scenario, and that’s where the financial reserve comes in.

One study carried out by the Credit Protection Service  and by the National Confederation of Shopkeepers (CNDL) sought to identify some financial habits of the Pak people and found that financial security and the desire to avoid the possibility of financial loss are the most cited reasons by those seeking investment options such as savings and private pension plans.

In fact, having this emergency money is very useful for anyone who wants to live more peacefully, after all, that way you know that you have somewhere to rely on in case of any eventuality, but many people still have difficulties in how to build their own financial reserves .

In addition to having a reserve in case something goes wrong, the emergency reserve also allows us to change careers, for example, without despair. To help you understand more about what you need to do to organize your emergency reservation, check out the tips below.

Organize your monthly finances

The first step to start building a financial reserve is to put your monthly bills on the tip of the pencil and understand how your finances behave. It’s no use dreaming of setting aside any amount of money if you don’t even know how much you spend every month – even worse if you end up spending more than you earn.

Make a list of all your monthly income as well as all expenses. It can be in a notebook, some spreadsheet or even financial management apps that record all your movements, but this first step is essential to understand your financial situation.

Identify your spending limit

With your monthly finances in order, it’s time to balance the way you handle your money and set spending limits.

There are some popular ways how to organize these boundaries, like the 50-30-20 rule but, in general, it is interesting that you manage to set aside 50% of your income for fixed and essential expenses (such as rent and food), 30% for variable expenses (such as restaurants and travel) and 20% for financial priorities , such as booking of emergency.

If you have any outstanding debt , it might be a good idea to focus on this type of commitment to the top 20% of financial priorities before you start building your reserve, preventing your debts from getting bigger and bigger with interest or until they end up getting dirty. your name on the market.

But know that there is no magic formula in this part, you have to test, make mistakes, reformulate and start over until you find a format that works perfectly for you. Our tip here is don’t give up on the first budget you make!

Prioritize the financial reserve

Now that you know how your monthly cash flow works and you’ve managed to control all debts, make the financial reserve your priority . If you want to follow the 50-30-20 rule, be sure to save at least 20% of your income each month without skipping any months.

Of course, each person has their own reality and maybe you won’t be able to save 20% every month, but it’s important to define a value that makes sense for you and commit to that goal over the months.

It is worth remembering that a general recommendation is to have a financial reserve that totals 3 to 6 months of all your monthly expenses , so if you want to build that reserve faster, you can also save more than 20% of your income in the months when this is possible .

Build a financial reserve: discipline!

In addition to the golden rule of not spending more than you earn, being disciplined with your finances is essential for anyone trying to improve their financial health.

I have already mentioned the importance of committing to setting aside part of your income every month to build your reserve, without skipping any month, and this commitment is indispensable for you to reach your goals and have more peace of mind in life.

This discipline also means committing to use your emergency reserve only in cases, as the name implies, of emergencies. Do not use this money for a vacation trip, buy an expensive gift or anything like that, but use it when you are in an unexpected situation or you need to take some time off work , such as a job loss.