How to Build a Financial Cushion: practical

We all like to believe that we're rational with our spending, yet many of us still haven’t built a solid financial cushion. Think back: maybe you started with a salary of 300 euros as a teenager, and now you are earning 5,000 euros per month, but the outcome is the same, you see 0 (or even a red line) at the end of each month.

The issue lies in a common trap: the more money we earn, the more we tend to spend.?As our income grows, so do our expectations and lifestyle demands, making it feel like we never quite have enough.?

If we have no goals, no matter how much we earn, there will always be a way to spend all the money.        

The way out of this earning/spending circle is to be conscious. A clear mindset helps define goals and understand what is essential. Financial goals act as a guide, helping you prioritize what truly matters and distinguish it from mere desires to please the ego or suppress emotions with quick dopamine hits.

Your spending is not just an impulse buy, but supports the life you truly want to build.

In the upcoming article, I am going to open up the topic of the psychology behind spending. For now, let’s dive into a practical guide on how to save money effectively and stress-free.

Financial Cushion: Practical

Start by identifying your income and essential expenses (rent, food, personal priorities). This will help you to realize how much money remains on the balance at the end of the month and then how much you can realistically save. Finally, set a clear financial goal and stay committed to your plan.

For example:

1. My income is 2,500 EUR.
2. Essentials: rent - 600 euros, food - 350, shopping (clothes, furniture)- 300, subscriptions - 250, other (beauty, restaurants, insurance) - 400. Total 1,900 EUR.
3. The goal is to have a financial cushion of 6,000 at the end of the year.

After covering the rent, food, and other bills you have around 600 euros left each month. By saving 500 euros monthly, you could reach your goal by the end of the year. The remaining 100 euros could be invested in your personal growth or education, the best investment that will bring you x10 return.?

Financial cushion as % of your income:

• 10 % - a relaxed pace that anyone can definitely reach,
• 20 % - a typical approach that helps you reach a reasonable goal in a balanced state,
• 40% - an ambitious target for highly motivated individuals.

Financial Cushion: Pay Yourself First

It is unlikely that you’ll save 500? euros at the end of the month; as mentioned in the beginning there is always something tempting or necessary to buy.?

Instead, on payday, set aside money for your savings first, then pay your bills, and live on what is left. You have created a healthy balanced plan, so there is no deficit in money. And whenever you need reassurance, just check your savings account.

Financial Cushion: How to make it work

Building savings is a powerful motivator. You'll get the satisfaction of seeing your balance grow month after month.?

Stick to your plan, but allow some flexibility. Personally, I’m not a fan of meticulously keeping track of all expenses. This not only kills the magic, but also creates a state of anxiety and economy.

Do not track your expenses, choose where you want to spend and follow the way. Be disciplined, but not bound by strict obligations.

Money may not be the key to happiness, but it can certainly offer peace of mind.

Feel free to share the challenges you are facing - I’m here to help guide you toward financial freedom and a balanced state of mind.