Firstly, let me assume that you have no idea what a ‘buffer’ is, so let me explain…
The ‘buffer’ I am referring to here is a financial reserve of money you have tucked aside for the sole purpose of helping you maintain your normal life through unexpected events, circumstances and situations that life seems to hand to us. Emergencies seem to inevitably appear at random times, whether it’s a car breakdown, medical costs, replacement of appliances, essential home repairs etc.
Accumulating and holding a sound buffer is a key part of a healthy personal financial situation. A buffer isn’t money for normal spending, purchases or holidays etc. You need a separate budget and savings plan for those things. A buffer is all about being financially prepared for the unexpected.
In my work as a finance broker I am continually coming across people who never had a buffer, and where do you think they turned to when the unexpected bills and expenses arose? Most often – credit cards! Resorting to credit card use is simply not good financial management, because what you’re essentially doing is borrowing to meet your living expenses. I know that a lot of people live from pay to pay, but you’ve got to take measures to prevent yourself from going backwards financially. So here’s a blunt message: Credit cards are not the answer, and if you can’t manage your ongoing living costs (which include provision for all the unexpected bills), then it’s time to restructure your affairs and/or change lifestyle.
I have helped numerous clients out by consolidating the credit card debts that have gotten out of control. Please don’t let that be you. However if it’s too late for that, then I am here to help you sort things out.
The aim of a buffer is to give you room to move when something out of the blue arises. Rather than pulling out the plastic, you have a special stash to cover it. Yes it takes discipline to put your buffer together, and an equal amount of discipline to avoid the temptation to spend the buffer money on things that just aren’t emergencies.
There are certainly no hard and fast rules about how much you need for a buffer, but if you really wanted to hear a figure from me then I’ll say $5,000. Some in the money world even suggest an amount that equates to three months of income (in case of job loss). Whilst these amounts may sound a lot for some, my suggestion is to assess your individual situation and commit to your own buffer target to build to and/or maintain. Something is certainly better than nothing.
Where you keep your buffer fund is entirely up to you, as long as you know what its purpose is and you have the discipline to only utilise it in sudden unforseen situations. If you have a mortgage, then the best place would be off your loan provided you have an Off-Set account or redraw facility that allows you to access it when needed.
I hope you can see the sense in holding a buffer. It really can lessen or absorb the impact of those unanticipated expenses that we all invariably get hit with over time.
Now, let me take you back to the title of this post: What’s your buffer? (Yes, that was a question for you to answer!)
Cairns Mortgage Broker – Jason Thomson is a Mortgage Adviser and Finance Broker based in Cairns with clients all around Australia. Client reviews featured on his website prove that Jason is a trusted industry professional, facilitating great outcomes for his clients. Using his wealth of experience in financial services, he thrives on delivering superior service. Jason is very approachable and is always looking for new clients to help in the often confusing world of finance and property. Offering a no fee service, you’ve got nothing to lose by having an obligation free chat with Jason today.