What will you learn?

  1.  
    What is a financial safety cushion?
  2.  
    What can shake the financial situation
  3.  
    What tools will help to insure personal finances

After optimizing finances, you already begin to understand the average monthly value of your expenses. This is important, since this indicator will help to calculate the size of the financial safety cushion.

 

A financial safety cushion is an accumulation in case of unexpected expenses. Such events include the loss of a job, unforeseen repairs or unplanned medical expenses.

A financial cushion is critical to financial health. For example, in the case of debts, large expenses and dependents, the loss of work can hit the pocket very painfully. The lack of a financial cushion in such circumstances can only aggravate the situation and force you to take extreme measures.

Three Reasons Why You Need a Financial Cushion

1. Reducing stress Levels

 You won't worry about tomorrow. Having an emergency reserve gives you the confidence that you can handle any unexpected events in life without adding money worries to them.

2. Insurance of funds against unnecessary expenses

 If you indicate that the funds in the special account are intended only for emergency cases, you will not succumb to the temptation to spend all the money on the purchase of a new TV or game console.

3. Insurance against excess debt Burden

 In case of unforeseen expenses and in the absence of a financial cushion, you can use a consumer loan or credit card with extremely unfavorable conditions, which will increase your expenses and delay the path to achieving financial goals.

How to calculate the size of the financial cushion

When calculating the financial cushion, first of all, they are guided by the size of monthly expenses. As a rule, they lay from three to six months. An amount equal to the expenses for three months will be the minimum size of the safety cushion if you have a sought-after profession, regular income, your own housing, no loans and dependents.

A financial safety cushion is...

 

What determines the size of the financial cushion

The more risk factors you have, the bigger the financial cushion should be. Risk factors include:

  1.  
    irregular income;
  2.  
    lack of alternative sources of income;
  3.  
    a rare, unclaimed profession;
  4.  
    proximity to retirement age (in pre-retirement age it is more difficult to find a well-paid job).

Also, risk factors include:

  1.  
    availability of loans, mortgages;
  2.  
    rental housing;
  3.  
    presence of dependents (children, unemployed wife / husband, parents) - each dependent is an additional risk factor;
  4.  
    the unstable economic situation in the country;
  5.  
    an unstable situation in the industry in which you work.

For each risk factor found in your possession, add a month - so you will get the necessary amount of financial safety cushion.

Financial safety cushion = monthly expenses x (3 + number of risk factors).

 

How to manage possible risks

Losing a job is far from the only risk a person faces in their life that can shake their financial well-being.

The potential risks that may arise over the course of a lifetime can be divided into the following categories:

  1.  
    Risks associated with life and health.
  2.  
    Property risks.
  3.  
    Risks associated with liability to third parties.

The first and most important category is life- and health-related risks, which not only require large expenditures in themselves, but can also lead to disability.

 

These risks are especially critical if there is only one breadwinner in the family and the whole family depends on his health. To cover these risks, a financial safety cushion is not enough, life insurance may be required here.

In this case, you can use risk and accumulative insurance.

1. Risk insurance

Protects against the risk of an adverse event.

 

The principle of its work is as follows: you make a one-time payment (insurance premium) and in the event of an unfavorable event, you receive a one-time payment - the insurance amount, which, as a rule, is ten times higher than the insurance premium.

For example, insurance against cancer with treatment in Russia in the amount of about 6 million rubles costs from 2 thousand rubles.

 

Thus, paying an amount equivalent to two or three trips to a cafe, you will protect yourself and loved ones from large expenses in the event of a diagnosis of the disease.

2. Universal life insurance (ULI)

Symbiosis of risk insurance and savings account.

 

The client concludes a contract for 5-40 years, in which he determines the desired amount of accumulation and the amount of insurance premiums. In the event of an insured event, the company pays the specified amount immediately or continues to pay insurance premiums instead of the client and pays the insured amount after the expiration of the contract.

Example of accumulation with endowment and without endowment

The main difference from ordinary risk insurance is that at the end of the insurance period, if no adverse event has occurred, all contributions are returned to you, sometimes even with a small investment income.

Choose the right claim

 

Advantages of endowment

  1.  
    The ability to specify as the beneficiary any person, not necessarily relatives.
  2.  
    Possibility of tax deduction on insurance premiums.
  3.  
    Receive payouts quickly.
  4.  
    Inability to seize or freeze money even in court.
  5.  
    In the event of divorce, funds in the endowment are not jointly acquired property.

Disadvantages of endowment

  1.  
    Low liquidity. If you decide to terminate the contract before the end of the term, you will not be refunded the entire amount of the transferred funds, but the so-called redemption amount, which differs each year. In the first two or three years, you may not get anything.
  2.  
    Low yield on savings.
  3.  
    The need for regular contributions.
     

    Identify the correct statement

     

    Other types of insurance

    To protect yourself and your family from unforeseen large expenses, you can use property insurance and liability to third parties. There are cases when, through negligence, you can cause damage to the property or health of other people. In this case, you will have to cover all the costs of third parties to eliminate the consequences.

    What type of insurance will allow you to compensate for losses in case of flooding of neighbors?

     

    Briefly about the main thing

    1.  
      A financial safety cushion is an accumulation in case of unforeseen expenses.
    2.  
      When forming a pillow, focus on the amount of monthly expenses and lay in it from three to six months.
    3.  
      The main difference between the endowment and the usual risky is that at the end of the insurance period, if no adverse event has occurred, all contributions are returned, sometimes with a percentage.