When you think about saving
you’ve really got two types of saving and you’ve mentioned them both so one is your buffer fund that’s that little packet of cash that you’re not going to
invest you’re going to keep it in cash because you might need it for a rainy
day. It’s like your living expenses. Think of it as a cushion right like if
something goes wrong that shit happens that’s the thing your going to access. You’ve got to think about how much that needs to be for you. So for if, I was a teenager
living at home I might only need a weeks worth of living costs in the bank and
I’d be pretty comfortable with that being my savings buffer. If I’m married with two kids and a mortgage you might want more like three to six months worth of living costs in a buffer to give you that cushion. It’s important that you’ve
got that in place before you get heavily into investing and the reason for that
is if you take that savings and you start investing and so you’re buying
things like shares or property or bonds or anything like that that you can’t get
quickly turned around, suddenly the emergency happens, you have to sell that
asset quickly to get that cash. If you’ve bought a property you will not sell it
quicker than 30 days. That would be a miracle. So you’ll sell it in more than 30
days so you’ve got a broken-down car or you can’t earn an income and
you can’t liberate it from the asset that means that you often end up taking
a loss. Because you’re in a rush so you might take a lower price on that
property. You might you know have to sell on a day when the share price is down. If you’ve got it locked up in an investment it’s harder to get out quickly and if
you need it in an emergency you don’t want that stress added to it. So it’s
important that you have some cash that’s not tied up in an investment to rely on
for that purpose. Does that make sense? Once you’ve got your buffer fund full
so whatever level full is for you, it you might be very happy with just
a couple of worth weeks of living costs, you might. My husband would have five years
of living costs in a bank account if he could. And that’s a lot of opportunity
cost you give up, we’ve negotiated somewhere in the middle, it depends on
what it is for you. Okay. What does that number need to be for you based on what
your obligations are, what your lifestyle is, how much do you need set aside? You
need to decide that. Once you’ve got that savings level, set then on to the
investment stuff. So that’s generally how you should think about the money coming
in, when it’s saving make sense?