In life, the only constant is change.
If we needed reminding of this, in 2020, Covid-19 changed our social, economic and financial structures in a very short time proving that we need to be prepared for the unexpected.
Fortunately, when it comes to finances, a simple guide line can help us plan for financial emergencies.
It’s called the 50:30:20 rule.
The 50:30:20 rule suggests using 50% of your income to pay for all your needs; 30% for wants, whatever you need to enjoy life a little; and the remaining 20% for savings.
Savings can be in any form. It can include pension contributions, saving towards a short-term or long-term goal, money invested in shares or property, and money held on deposit.
Rainy day and emergency funds
It’s important to try to have some savings set aside for the unexpected.
Sudden expenses like paying to get a car fixed, covering expenses if you fall ill or to pay for a trip home for a family event when you are abroad.
Ideally, a rainy day fund should equal 3 - 6 months worth of living expenses. But, depending on your outgoings, €1,000 should provide you with a good rainy day fund to begin with.
If this amount seems out of reach, try saving €11 a day for 90 days.
To be prepared for greater challenges, like the loss of your job, you might want to have enough money saved to support yourself for 3 to 6 months.
Insurance and protection
Having insurance and protection cover in place for difficult times that might arise in the future is another factor worth considering.
We’re all familiar with car insurance, home and contents insurance and the insurance that retailers try to sell you when you buy electrical goods.
But as life changes, and you take on family responsibilities, you might want to consider life, health and income protection insurance.
They might not be an immediate priority early in your career, but they can provide invaluable protection in the long term.
The information contained in this article has been prepared by Bank of Ireland (“BOI”) for information purposes only and is not meant as advice. BOI believes any information contained in the article to be accurate and correct at the time of publishing.