Gaping Hole Number 3 – No Emergency Fund
Imagine you’re happily working at your new job, enjoying nights out with your friends, dining out, drinks and such. Your lifestyle is wonderful – then you lose your job. What will you do now? Can you cover next month’s rent?
Surprisingly, many people with high paying jobs have no rainy day fund. In Thomas Stanley’s excellent book, The Millionaire Next Door, he referred to these folks with the Texas term: “Big Hat No Cattle.” They have a BMW, a nice home, and all the toys, but nothing saved.
However, please don’t think of emergency funds as purely for ‘rainy days.” Think of this scenario: you meet a lot of people, you’re in the scene and you encounter an excellent business opportunity – but you have not cash to take advantage of it or you don’t have the cash to quit your job and work this opportunity full time – how would that feel? To miss out?
For many reasons, it makes sense to have a cash stash as part of your overall financial plan. Many financial advisors recommend 6-12 months of living expenses for an emergency fund. However, for those of you with bigger dreams, consider a much larger stash to prepare for opportunities. If you don’t want to sacrifice in this way, don’t complain when you can’t seize an opportunity when it knocks on your door!
Action plan for emergency fund: consider saving in a safe type of account for your emergency fund and set a strong, aggressive goal to 6 months living expenses if you are not there yet. Once there, set the next goal for 12 months of expenses and for additional needs to plan for opportunities. If your account is large (because you’re a high income earner/high net worth), consider diversifying your safe account in different currencies including precious metals.
For Gaping Hole Number 1 Click HERE
For Gaping Hole Number 2 Click HERE
I hope you enjoyed this article. As you can guess, I am a comprehensive financial advisor in the Boston area -specifically in Medford, Massachusetts. I also spend time and serve clients in the San Francisco bay area (right in SF), Maine and Florida. If you are exploring a financial planning strategy, feel free to send us a quick contact or call us at 781.393.0021. Thank you!