Financial Security

Financial Security: Kitchen Table, Fridge and Freezer

Unless you are a lottery winner or an heir to a vast fortune, financial security only comes through the application of discipline over a sustained period of time. Time measured in decades rather than days. But there has never been a better time to start than now. If you are working you should be saving.

During my 20 years in Dubai, I have met many people from multi-millionaires to manual labourers. In this time, I have learned that income is not what determines how much a person saves but their level of expenses.

And here’s the thing, most of us have more control over our expenses than our income. This means most of us have control over our progress towards financial security, which means being able to choose to work rather than having to work. So here’s the get rich slow scheme…

Three Pots For Financial Security

Failure to save for the future results in expensive borrowing when you need extra cash in the short term and living on the breadline in the longer term. This is a stressful situation to be in and should be avoided.

A good friend and respected colleague uses the following analogy. A person’s money should be split into 3 pots he says: first the kitchen table representing money needed to pay the bills and everyday living expenses; second, the fridge representing medium-term saving such as emergency money to cover unexpected expenses and goals up to 3 years away; and lastly the freezer representing longer-term investing such as investing for school fees and retirement.

Of course, making sure there is always food on the kitchen table is essential but sometimes we need to raid the fridge to do so and in extreme circumstances, we may also need to raid the freezer. However, it is only possible to raid the fridge and freezer if they are first well-stocked. The best way to keep the fridge and freezer well-stocked is to put some food [money] into them every time we get paid.

How Much Should You Save?

Assuming you have no savings, set yourself a target for the amount you will save. If you cannot save 10% of your income, you should look at your expenses and see where you can cut back. Whilst you are not spending more than you are earning, which is a road to ruin, you would be unable to cope with a sudden drop in your income. Your financial security relies on your income.

If there is only one source (salary) the loss of that can be disastrous if there is no alternative income source in place.

When Should I Save?

When your salary hits your bank account on a monthly basis, split the amount you intend to save into two: one part goes into a bank savings account (fridge) and the balance is invested on a monthly basis (freezer).

This is the first payment on your account each month. It is important to save first and spend second. This is because most people find they have little left over for saving at the end of the month. Over time this builds up and adds to your family’s financial security.

Your daily expenses are met out of your income which is paid into your bank current account which is represented by the kitchen table. If you don’t have any savings you will invest more in the ‘fridge’ at first than in the ‘freezer.’ This is because you do not want to disturb longer-term investments for shorter-term cash flow reasons.

Once you have 3 to 6 months expenses in the ‘fridge’ you can invest a greater proportion into the ‘freezer.’ But the most important thing is to save. Once the money starts to build up there is a real sense of achievement and this encourages you to save more. For information on regular savings, see this link.

Financial Security: Kitchen Table, Fridge and Freezer

For more investment ideas please contact me on 050 594 5217 or book a consultation using this link.


Stuart Porter - Expat Financial Advisor UAE
Get in Touch