How much of a financial buffer do you need as both a home and business owner?

financial buffer

The words ‘safety net’ or ‘buffer’ are commonly thrown around to protect your personal and business assets should something go wrong. If the last two years have taught us anything, it’s that having an adequate buffer on your finances is the fine line between success and liquidation. 

The finance industry has been overrun with businesses and homeowners seeking emergency funds to stay afloat. By saving a relatively small amount each week, you may avoid bankruptcy if things go downhill. 

Here’s how you can create the perfect buffer for your home and business. This can be the smartest decision you’ll ever make…it may just save your business!

Creating a financial buffer

It’s important to note that all mortgages and debts are issued on different terms. The following advice is general and may not directly apply to your circumstances. Always consult an expert before making any large financial decisions. 

Have a specific savings account

For all the young adults, this one’s for you. 

Put a minimum of $200 per week into a specified savings account. After a year, you’ll have $10,000 in savings that you can use for emergencies and interest rate increases. You should start to do this immediately before purchasing your first home. 

Cut down on your purchases 

Don’t know how you’ll find an extra $200 per week? 

Reduce the number of snacks you buy, dine in more often, and purchase discounted groceries where possible. Although the savings will be negligible at first, over time, they will compound, and you should see a healthy addition to your buffer account. 

Stick to your budget

For those who have an existing mortgage on their home, create a budget, and stick to it! There are heaps of online platforms that can help you create incredibly accurate budgets. 

Once you establish a consistent savings plan and account for all expenditures, open multiple offset accounts against your home loan for each recreational spending category. These categories may include:

  • groceries
  • petrol
  • loan repayments
  • miscellaneous weekly spending. 
Open an account for impulse buying

If you are prone to impulse buying, this one’s for you. Create a second bank account with another institution, and label it your ‘impulse buy’ account – don’t request a debit card, and discuss with the bank to ensure there is a delay on each transfer. 

By doing this, you actively make yourself consider each and every purchase. You’ll likely dissuade yourself from buying that new phone or car accessory if it takes 12 hours+ to purchase. 

Be a bargain hunter

It’s time for you to get your bargain hat on and go bargain hunting! It’s the best way to save money to continue building up that buffer. If you’re looking to purchase a medium to large-sized item, ensure that you’re getting the best value. Looking for an extra five minutes may help you save hundreds. 

Always monitor the interest rates

The RBA is consistently hiking the rates in Australia. This significantly impacts your existing loans and other financial commitments. Having an adequate buffer can protect you from these unexpected increases – giving your personal finances and business finances a wiggle room to adjust to the higher payments. 

Manage your subscriptions

Netflix, Spotify and other apps have taken us by storm. Go through your bank statements, and ensure that you are using all the subscriptions you are paying for. This is by far the biggest money waster in modern-day Australia. 

Every business and homeowner is different, but a $10,000 buffer should be the universal minimum. If you can contribute more, then that is excellent! Talk to a financial planner today if you require assistance building healthy savings and budgeting plans.