Do you have a financial buffer?

I bet many people are wondering what I'm talking about.

Well, how many of you out there have got a pot of money that will sustain you, keep you in the lifestyle you're accustomed to if you're unable to work and have no money coming into the household.

Now I for one never used to know about this until it was pointed out to me a few years back.

What is a financial buffer?

Financial buffer is an amount of money that is saved, not invested, which can be accessed immediately, meaning it's liquid.

This is so that if something unexpected happens in your life where you're unable to work and have no money coming into your household, you'll be able to survive for a period of time.

That period of time is relative to the size of your buffer and how much your monthly expenses are, which means the bigger the buffer, the more time into the future you can purchase.

When I'm working with my clients, I usually advise them to have at least three months financial buffer as a minimum. Ideally I suggest 6 to 12 months.

Now, the reason we need to think about the financial buffer is when we think about Maslow's hierarchy of needs, the lowest level of basic need is that of the physiological need, which include shelter, food, water, clothing, and sex. These are the universal human needs that are required for us to survive.

Another concept that might be new to you is that of our inner Chimp.

This is the part of the brain called the limbic region, which is the primordial part of our brain, which is involved in our behavioral and emotional responses.

Why am I telling you this I hear you ask.

Well, it is our Chimp brain that will, when we don't have any money coming in to pay all the bills and keep a roof over our head will be the causes for us to behave irrationally and emotionally, an example is that if you lose your job and don't have a financial buffer and have been living, as most of us do, close to our means, we spend what we earn, then the Chimp brain jumps in and you panic and you look for a job that will pay, even if that is a job you despise.

I've worked with people who hate their job, but thanks to the Chimp brain and the lack of financial buffer and not willing to make the change to another due to the fear of not getting another job.

Back to our financial buffer.

This allows us to silence the Chimp brain.

If we do have an unexpected time where there is no income, which can be for many reasons, like an accident say, is also used when people want to change their career or job, as it allows them to be able to make informed decisions and not, which as the case may be, finish one job only to go back to it or go to an even worse job, which is a terrible place to be.

It is also invaluable to have a buffer when you're starting your own business.

I hope you found this useful and informative.

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Thank you.