Saved by the Buffer
A buffer can be referred to in many different terms – a rainy day account, savings account, emergency account or safety account. It doesn’t matter what you call it or what interest rate it earns provided you have one.
So why do you need it?
In life, there are many expected and unexpected events. The aim of a buffer is to protect against these unexpected events. The buffer is designed to provide you with funds when you need them most – for example if you are made redundant, you are sick or something happens to your dog.
One of the biggest risks of investing is that you cannot hold the investment for the desired timeframe. If you don’t have a sufficient buffer, you may be forced to sell these assets (shares or in a bad case a property) which may not be at an ideal time.
So how much do you need?
This is subjective and everyone will have a different amount they are comfortable with. We aim to have six months worth of living expenses in your buffer account – as you situation changes so will the size of your required buffer account.
So where do I invest it?
Somewhere conservative and easily accessible. This is not the funds you use to buy speculative stocks, or pay down your credit card due to everyday living expenses. A high interest account will suffice, your offset account if you have a mortgage or potentially a defensive managed fund.
So as boring as it sounds – get a buffer account because one day it will save you