According to sociological surveys conducted by the Rating company, in 2023, only 33% Ukrainians had savings. In addition, only 8% respondents systematically saved money. This means that the majority are not ready for financial difficulties! Perhaps the brutal war and uncertainty have significantly reduced the number of citizens who previously ignored the need for a “reserve fund”. Therefore, in this article we will consider the concept of a financial airbag, its meaning and methods of accumulation.
What is a financial cushion and why is it needed?
A financial safety net is not about "large reserves," but about survival in times of crisis.
Here's what it means:
- Money that is always on hand in case of force majeure.
- Less panic and stress if life starts to throw you over the knee.
- There is much less risk of getting into debt (because a credit card is not a cushion, but the opposite!).
This is an inviolable reserve of funds that is used only in case of serious life difficulties.
There are many cases where money may be needed immediately:
- Loss of main income: dismissal, downsizing, change of job.
- Unstable earnings: freelancing, seasonal activities, self-employment or small business.
- Unexpected medical expenses: treatment, dental procedures, emergency care, veterinary services for pets.
- Sudden large expenses: repairs to a car, household appliances, or home.
How much money do you need for a financial cushion?
The financial cushion is usually measured in months. This helps to understand how long it is possible to maintain a normal standard of living in the event of a sudden loss of income or while searching for new sources of finance. The average duration of a job search is about two months, and in the case of entrepreneurship, launching a new project or business can take about half a year.
Having 2-3 months of savings is a reasonable minimum for financial security. However, such savings may not be enough in the event of serious health problems or if the search for a new job is delayed.
The optimal reserve size is 6-7 months. This allows you to find a suitable job without haste or complete long-term treatment without falling into financial stress.
How to calculate the size of the financial cushion?
A financial cushion is your personal lifeline in a world of challenges. Some people believe that emergency savings are the privilege of the rich. In fact, anyone can create a stable financial reserve if they approach the issue wisely.
Step one: cash flow analysis
Before you save money, you need to understand where it goes. Grab your phone, go to your banking app, and find out:
- How much money comes in each month?
- What are the main expense items?
- Are there unnecessary expenses that can be cut?
Only after that can you move on to the second step!
Sources of income: how stable are they?
If you receive a fixed salary, you are in a safer zone. But what to do if the income is unstable? Freelancers, entrepreneurs should double their financial cushion, because profits can drop sharply in conditions of a decrease in the purchasing power of the population. The best option is a reserve of 6-12 months of the minimum required level of expenses.
Mandatory expenses: what does the budget consist of?
A financial cushion should cover the basic needs, without which life becomes chaos. Here is a list of expenses that you should definitely consider:
- Utility bills – it's hard to survive without electricity and water.
- Food products – no food, no strength.
- Clothes and shoes – no one wants to go barefoot.
- Repaying loans – debts will not disappear!
- Transportation costs – fuel, travel, taxi.
- Children's education - schools, clubs, sports.
IMPORTANT! Add medical expenses here if you don't have insurance. Life is unpredictable.
How much to save?
There is no single magic formula, but the generally accepted rule looks like this:
- Minimum 3 months of expenses – if you have a stable job.
- 6 months – if there is a risk of loss of income.
- 12 months – if your business or job may be unstable.
How to understand how much you can realistically save? Keep a budget for at least 1-2 months. This will open your eyes to your financial habits and show you real possibilities.
A financial cushion is your freedom. It gives you peace of mind, confidence, and the ability to avoid panic in difficult situations. Start small: determine your expenses. Get rid of unnecessary things. Start saving, even if it's 500 UAH per month!
How to create a financial safety net?
Building a financial cushion is not just about money, it's also about discipline, planning, and the ability to forgo immediate desires in favor of long-term goals. By following these principles, you can not only create a solid financial reserve, but also improve your overall quality of life.
Choosing the right accumulation strategy
- Defining a specific goal.
- Start with small amounts. It is worth starting with minimal deductions. For this, you can use the funds remaining after major expenses. This will allow you to gradually get used to the new expense item in the budget without significant stress on your financial situation.
- Gradually increase your savings. By regularly reviewing your spending, you can find items that need to be optimized. Pay attention to unnecessary or impulsive purchases.
- Increase income. Optimizing expenses is only one part of a financial strategy. To speed up the accumulation process, you should look for ways to increase your income: professional development, additional sources of income, investing, or starting your own business.
Where to keep a financial cushion?
Proper management of personal finances is of great importance for financial security. The choice of a method of storing savings depends on the economic situation and individual goals. Let's consider the main options for placing funds and their features.
Cash: Quick access but no return. Cash is the most liquid asset, allowing you to use money quickly at any time.
Bank deposit: stability and guarantees. Opening a deposit in a reliable bank is one of the most common ways to save money. Deposits bring income in the form of interest, which partially compensates for inflationary losses.
Independent investment: high risk - high reward. If the savings have reached a significant amount and the owner is willing to take risks, you can consider investing. Investing in securities, in particular the stock market, opens up opportunities for significant capital growth.
Each savings management option has its own advantages and risks. To reduce potential losses, it is recommended to diversify funds by distributing them between different financial instruments. Keeping a financial cushion separate from major expenses, regularly reviewing the budget and controlling expenses will allow you to adapt your strategy in a timely manner in accordance with changes in the economic situation.
What can NOT be done with a financial cushion?
A financial cushion performs a protective function, and does not serve as a tool for realizing desires. Using it for a vacation or buying a new smartphone is not the best solution. Travel expenses, gifts, and entertainment should be provided for as a separate item in the family or personal budget.
How to maintain and increase a financial cushion?
After the war in Ukraine began, investors found themselves in a state of uncertainty, expecting new upheavals, as the risks of losing capital increased significantly. Economists have given several important recommendations for financial behavior during this period.
Today, you don't need to be an analyst to understand the deplorable state of the national currency. Even when the hryvnia demonstrates a situational consolidation in relation to the euro/dollar pair, this will not last long, because industry, production and investment inflows are not growing in the country. Therefore, the first rule of preserving savings is to transfer funds into stable securities, for example, in euros.
Another mistake can be selling assets that have significantly lost value. You should not panic and sell assets that have significantly depreciated. Emotions often take over, and people get rid of securities at the most inopportune moment, and in just a few days their price can increase by 30%.
Experts also advise against buying shares of companies that have fallen sharply in price, especially those for which there is increased demand.
A financial cushion is not just a reserve of money, but confidence in the future. It gives you freedom of choice, the ability to calmly survive crisis moments and not panic at the first difficulties. Building a reserve fund is a process that requires self-discipline, but over time it becomes a natural part of managing personal finances. The sooner you start, the easier it will be to achieve stability, regardless of the circumstances.
