Have you ever been in a financial emergency? How did you solve it? What kind of logic did you start to break down your savings? In the previous article, we have already talked about one reason why you can break your investments, now come the second legitimate case when you give yourself a green way!
What is a Financial Emergency?
For example, buying a long-awaited branded polo doesn’t matter. Many people misunderstand the conservative definition of an emergency and mix the need for necessity and luxury spending!
It is clear to everyone that the “yellow check” has to be paid. If we do not do this, we will find ourselves in a kind of financial emergency. The same is true of our specific obligations that affect our housing, work, food, or travel.
There are dedicated situations that are embarrassingly pressing
Let’s look at a simple example! You just bought an apartment and you had the opportunity to buy a store. Because you don’t want to reach your safety margin (if you have one at all) and move to a lot (s), you would be able to buy the container by saving your savings.
Is it really an emergency? Let’s think together. My goal is to give you a line of thought that you will be able to translate into your own life and help you make the decision! Don’t forget that we make emotional decisions. But now we call logic!
The logic dictates that this is a financial emergency
First, decide whether the repository is a necessity for us (present or future) or not? Now we assume that it will be necessary sooner or later because of a lack of space. What can we do?
There are two things we can do: buy or rent. Letting us risk letting you find the rent or the rent that will never be our store at the end. Usually the rent is 5-10% of the value of the storage on an annual basis.
The value of the storage is HUF 1.3M, the rent is HUF 10,000 per month. If, after 5 years, the value of the storage increases to 2M, then the rent will rise to 15-18,000 HUF.
We can be sure that we will pay the present value of the container in 10 years. Question: Will we live there for 10 years or not?
Buying a container involves many casualties
Usually we can try with a loan (personal loan or mortgage if we got the store for the purchase price of the property) or kp. In the case of kp, either we reach our safety margin or break down our running savings.
The problem with the safety margin is that you will strip yourself financially and become susceptible to all kinds of negative changes while your financial situation is not settled.
By saving your savings, the bigger problem is, on the one hand, getting out of it badly, putting your long-term goals on the other hand, and falling down on yields. The question is, what do we do better?
Hire a higher cost than the available yield?
What is the long-term return on your savings (both in crisis and in economic growth)? Is it more or less than 5-10% of the cost of the storage for that amount?
In 10 years, the 10% interest rate means that my money is 63% more. How realistic is your savings in terms of cost and tax burden?
Also count on the value of the container. Can you imagine that today the storage worth 1.3M forints is worth 2M for 10 years? This in itself is a 53.8% capital gain over which we get the “unpaid rent”.
If I look at the capital gains and the relationship between the yield / rent available, we will probably gain more by buying the store than would be the return on savings, which at best would be enough to pay the rent without getting wealth.
When the safety reserve is the cover for the financial emergency
So far, I have talked about a larger investment that should be covered by long-term savings on the condition that you replace yourself with the withdrawn amount over time. (You give yourself an interest-free loan in Hungarian)
However, you will hopefully have a minimum 6-month security margin. This money is fundamentally used to deal with emerging “everyday” financial emergencies (such as paying a yellow check).
We need to see exactly how well our money is and how it works. I always say that our long-term savings are not available for us. That is why it is long-term. Only in very justified and logical cases can one be touched.
So, for the first time, we resolve the financial emergency with a deferred payment from our regular income. If this does not work, then tap the safety margin. If this proves to be little, ask family support if possible. – You shouldn’t go beyond this point …
If we go beyond it, we will prioritize our goals and break down the least important savings for our livelihoods (if there are multiple purposes, such as retirement and housing savings).