Having some money in the back of your hand to deal with unforeseen expenses is very important. I call it a buffer account, a small money buffer against small personal financial shocks. It is the very foundation of your personal finances. Forget BSU , IPS, share savings account and everything else before you have such an account in place. Price 1, in other words.
Power crisis
The last year has shown us the importance of having such a reserve. Because even though the electricity bill is by no means an unforeseen expense, there are probably very few who had budgeted for a 3-4 doubling from last year! And the pandemic has shown that even secure, permanent jobs suddenly became uncertain.
Record high savings
Fortunately, it may seem that more and more Norwegians have acquired such a buffer in the past year. According to Finans Norge's consumer survey in In 2021, 86 percent answered that they either have none or not major problems with an unexpected extra expense of NOK 20,000. Only 13 percent answered that such an expense gives them quite big problems.
Three years ago, this proportion was as much as 25 per cent. It is true that the amount limit was somewhat higher, i.e. NOK 25,000.
What does Statistics Norway say?
But what does Statistics Norway's annual living conditions survey say? It is far more comprehensive than Finans Norges, with interviews of 12,000 people. There, 20% answer that they would not be able to manage an unexpected expense of NOK 19,000. That means more than 900,000 people. In that case, they would have to take out a loan, get help from others, or sell assets. individuals who have had a personal financial crash. Very often it starts with the one, slightly high bill that came up a bit suddenly. You use up your salary every single month – on fixed bills, housing, impulse purchases, holidays, nightlife. Very little or nothing is saved. Then comes the far too high bill from the car repair shop - or the dentist - or the speeding ticket. Or the washing machine breaks down at the same time as a window needs to be replaced in the home. In order to afford the unexpected expense, many people use credit cards or take out a consumer loan. But it can be difficult to tighten up consumption so that you pay off the extra loan within a reasonable time
Forced saving works
Okay, so a buffer account is smart. Well and good. But how can I save money that I don't have? Is the account empty right before the next salary? Why not start small:
Micro savings: Every time you draw the card in the store, NOK 1, NOK 5 or a tenner goes into the buffer account
Autospar: Set an automatic deduction of NOK 500 from the salary account to the buffer account the day after payday
I'm reasonably sure that you won't notice much of a difference in consumption when you put in such forced savings, as I call it. But you'll notice the day the car breaks down or the washing machine breaks down.
It's fine to use the framework loan as a buffer account, or to pay down extra on the mortgage, but be aware that it can be difficult to save back up the buffer when the money has been baked into the loan. A separate savings account can be more motivating to save. But choose an account with the best possible interest rate. The best savings accounts can compete with the lowest housing interest rates.
How much?
Some consumer economists advise you to set aside 2-3 monthly salaries in such an account . For many people it will be a bit much, I think. There is no clear conclusion and it depends, among other things, on whether you are single, whether you have children and what kind of obligations you have. And, not least, how much you own. The more cars, homes, cottages you own, the more you should set aside. Because the unforeseen expenses are often linked to assets. Put another way: If you are single and don't own a car or a home, you can easily get by with one net monthly salary in your account. If you are a family with your own house and a couple of cars, you should probably have at least two monthly salaries.
Let's get specific!
Here are some examples you can start from, depending on your life situation:
- Student: You don't need to aim to build up a buffer on a normal monthly salary. You can't afford that. NOK 5,000 will last a long time. Also remember that many unforeseen expenses can be covered by insurance. Check that you have the most important things, such as household goods, travel and car.
- Working couple with accommodation: According to Statistics Norway, the median income for a couple is NOK 700,000 after tax annually, which amounts to NOK 58,000 a month. The buffer target for an average household should be NOK 50,000.
- Sole parent: The target should naturally be lower than for the couple. A suggested sum could be NOK 20,000.
Like old?
There is often a connection between your income and how much you actual owner, and who can actually smoke by accident etc. The age of the assets also plays a role.
If, for example, you moved into the house ten years ago, and bought a lot of the white goods then, it may they may break or deteriorate at about the same time.
How you live also has a meaning, not just the value of the home. In apartments connected to a housing association, it is often the housing association that covers maintenance costs, such as maintenance of the building. If you live in a detached house, you have to pay for everything yourself, which is why it might be a good idea to have a bigger buffer.
Animals and teeth
And yourself if you have the same salary, job, house and car as your neighbour, your need for a buffer may be different. For example, do you have pets that can cause you large one-off costs at the vet? What about your teeth? Is the family plagued by dental problems that lead to expensive dental bills? It is of course possible to insure yourself against such expenses, even if these insurance policies are highly priced. But if not, you should at least make sure you have liquid funds to pay such extra expenses.