Financial protection/security describes the amount of money that you should have ready to cover your living expenses for a fixed period of time without having to pay capital. The guide value of 10x the fixed costs is circulating.
Financial Security Vs. Financial Freedom
However, it is clear that the period to be bridged and therefore the sum for financial protection is different for everyone, depending on their monthly expenses and also in which country they live and which social security systems are integrated.
For example, I live in Germany with compulsory unemployment insurance. This guarantees me at least one year (under my conditions) continued payment in a certain amount of my net fee. This always covers my fixed costs for one year and I can always put something aside. If the end of the world is not imminent, I assume that I will find a subsequent job within a year.
A not insignificant topic is surprising costs, such as car repairs, medical treatment costs and other bottlenecks, which would lead to the fact that you touch your investment capital and that should never happen.
For these cases, I would like to work out a financial protection cushion of € 5,000 for the time being. That is a little less than 7 times my fixed costs. This financial cushion should never be spent on luxury and should always be accessible, for example on a call money account.
Financial protection makes no sense if you don’t get it right away. That means no long-term investments with this money, from which the money cannot simply be withdrawn.
For Financial-Zen, financial protection means that you gain a lot of security. At this stage, you are financially stable.
The payment of the monthly costs is no longer in acute danger due to job loss or illness. Likewise, you no longer have to be afraid of sudden costs, because you are always liquid.
The protective cushion protects against bottlenecks that require an attack on the investment capital, which may result in losses due to poor timing.