7 Benefits of an Emergency Fund – Episode 240

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[00:03] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler. In today’s episode, Kim Butler and I talk about the seven benefits of having an emergency fund. Some of these benefits are things you may have never thought about. We also explain why an emergency fund is not enough. How it needs to be an emergency opportunity fund, and how without having that savings, some of the best opportunities may pass you by. Let’s dive into this episode with Kim. Welcome to the Prosperity Podcast. Today Kim Butler and I are going to be talking about emergency funds, and we’re going to

[01:02] be talking about some of the surprising benefits that come from an emergency fund. Are you there, Kim? I am so happy to get to chat about this with you. I know this is one of your favorite topics. It really is, and it’s amazing because most financial people just skip right over it. You need an emergency fund three to six months, next. It’s sad because it’s so, so important, and I’ve got kids right now that are getting out of the house. They’re in college. One of them’s graduating soon, and of course all the questions come up like, do I do my 401k first? Do I do this first? Do I that first? No. You do your emergency fund first, but as you know, I really like to call it your emergency slash opportunity fund.

[01:49] Don’t you think that sounds like a better name? I do. I like the opportunity piece because in truth, there are opportunities that come in front of us, and if we don’t take them, then it can create an emergency in our life. Oh, that’s very well said. Furthermore, opportunities present themselves, I think, more often when we’re in a position to take advantage of them. If you don’t have cash, liquid dollars that are available, you’re not going to be able to take advantage of opportunities, or like you said, the opportunities will cause you to maybe take some action or not take some action and consequently potentially become an emergency, but furthermore, nobody likes to focus on, think about, continue to

[02:43] continue to continue saving for an emergency fund. Like fine, get your three to six months, six to 12 months, whatever it is. If you’re salaried, three to six is fine. If you’re in a business environment, six to 12 is a better number. Get that stored, but after that, it’s so much more exciting to think about saving for opportunities, and so frankly, I just get people thinking about saving for opportunities right away. In fact, you know, we were just with our family and we talked about what we wanted to do two Christmases from now because we kind of have an every other year approach where we do a family Christmas and then we let everybody do their own Christmas and then we come back a year later and do another family Christmas, and so it’s

[03:28] so interesting to talk about two years out because we have a pretty big goal that we want to do for Christmas, and so we’re going to need a little financial help from everybody to pull it off. So we said, you know, let’s get everybody to play their own paint plane tickets, for example, and how easy it is and how exciting it is to save 10 bucks a month or 10 bucks a week or, you know, whatever the numbers can end up being for something a couple of years out that’s an opportunity like everybody will make that happen. And yet, if we said, oh, you know, two years from now, everybody needs to have an emergency fund. Boring. Yeah. So what you’re talking about is intention and you’re putting a name

[04:11] to the money. But also on top of that, it sounds like you have a specific plan and you’re working towards that plan. Is that correct? Yes, except you’ll pardon me by changing the word plan to a strategy because I don’t like the word plan because it sounds like Russia and Cuba and those countries don’t work. And so this is our strategy for 2019. But yes, you’re absolutely right. It’s a word and an intention and a focus. OK, so what we’ve unpacked so far is that if you have an emergency or opportunity fund, one, it’s going to help you have an abundance mindset because without that money, you’re not going to be able to see the opportunities around you. Is that safe to say? Absolutely. OK, now, another thing you talked about is that it may even help

[04:59] reduce stress in your life and create a healthier life. Yes. And so because opportunities often involve travel, taking time off is an important thing. And thank goodness we’re in an era where our society has finally started to realize this because it is so important for people to take time off. I was introduced to the concept of free days from Dan Sullivan, strategic coach in the mid 90s. And ever since, I have made an effort to have a free day. And Dan Sullivan says that a free day is midnight to midnight. No business activity. And so for a lot of people, that ends up falling into kind of the, well, I’ll do my Saturday chores or whatever. No, it’s really designed to rejuvenate you and disconnect you

[05:48] and make sure that you come back to the office with all the energy that you can possibly bring to the table because you took some time off. Well, if you don’t have an opportunity fund, even if it’s just a peace of mind fund, which is another great word for it. You know, we talk about naming things. Then you’re not going to be free, truly free on those days. And free days can be on the weekends, of course, but they don’t have to be for entrepreneurs. They can be any day of the week. And of course, if you’re in a business where you’re an employee, you still want to be an entrepreneurial thinker. And so to get the benefits of rejuvenation, you want to have a little bit of money tucked away so that you can

[06:33] maybe just be at peace doing nothing. Or maybe you can spend a little money, you know, buy a ticket to a play or, you know, pay the entrance fee to a national park to go on a bigger hike than you would do on a regular day or something like that. Those things cost a little bit of money. So make it happen. OK, so another benefit you’ve talked about is travel. And sometimes it could be a surprise travel, you know, taking your spouse somewhere. I remember doing that for my wife. You know, I had her bags packed and she came home in the door and I said, let’s take off. And she was shocked and it was worth it. And now it’s a memory that we’ve cherished for years and years. But sometimes there’s travel that happens.

[07:15] It’s unexpected. Maybe a family member is sick or passes away without the emergency fund. You can’t do anything. Exactly. And it’s so important to be able to jump on that. And yes, there are credit cards. And yet we want to be in a position where if we put that plane ticket on a credit card, we know when the bill comes, we can pay it off because not having monthly carryover credit card debt is one of the most amazing savings in your life. And believe me, I’ve been there. I’ve been in a position where I had to put money on a credit card that I couldn’t pay off right away. And that’s just a sick extra cost. You’re talking 12 to 24 percent added. You know, when we go to the store and something’s 20 percent off,

[08:03] like we get excited about that. So here you’re adding 12 to 24 percent, depending on the interest rate of your credit card. And you absolutely don’t want to do that to yourself. So, again, if you have your emergency opportunity money, go ahead and put it on the credit card. When the bill comes, pay it off. Don’t worry about it. Yeah. So let’s talk a little bit more about the opportunities. And maybe there’s an opportunity that you can share with us that you’ve seen yourself or someone else experience where it just popped up. And because you had the funds, they or you were able to take advantage of that. Can you think of one? Absolutely. It’s a recent one for me. And that is an opportunity to up my game in a big way

[08:48] in some additional education that I wanted. And so I think investing in yourself is one of the best investments that you can make. And I’ve invested in myself in many, many ways for continuing education. Now, this isn’t formal like grad school. It is more of the type where you purchase a seminar or you maybe purchase a series of seminars or a course or a class or some coaching. And it involves travel. It’s a hotel bill or two, because sometimes spending two nights for a one day event can actually get you more value than just spending one night for a one day event. And then, of course, the event itself is going to cost some money. And there may even be things when you get there that you might want to buy.

[09:33] You might want to take somebody out to dinner that you hadn’t expected. Or there may be an offer at the event that is the next step up that you want to take advantage of. And it’s just like right there in front of you. And if you do it now, you get this massive discount. And if you don’t, you miss it. Those are all things that are fabulous reasons to have opportunity funds that if you don’t, you wouldn’t even consider it like it wouldn’t even cross your mind. You wouldn’t even be open minded to the opportunity. And yet, because you have those funds, when the opportunity is there, you can strike, you can feel good about it, and you can get all the benefit of that self-investing. That is a great example.

[10:14] I want to talk about another subject and how we have an example of an opportunity fund creating more cash flow. Can you think of any of those examples? Absolutely. So we have a variety of investments that pay monthly income. And this is a challenge for a lot of people because the stock market just doesn’t do a good job of paying monthly income. You used to have a lot of companies that would pay dividends, and that was people’s income. And those just aren’t really very prevalent these days anymore. But there’s a variety of other investments that do pay monthly income. I can think of a couple just right off the top of my head. The bridge loan category is one of them, of course. And then the private investing.

[11:00] I’m blanking on my names right now. The peer-to-peer lending is another way. And peer-to-peer can work in a lot of different ways. Technically, a bridge loan is a peer-to-peer loan. You can do things like Prosper, but we actually have a brand new opportunity that I’m really excited about, which will be a form of peer-to-peer lending where you get monthly income. And the details of that aren’t relevant for this discussion, but it’s so nice to be able to use your opportunity fund to potentially borrow against it, to then invest and use the monthly income from the investment first to pay back your opportunity fund so that you have it to do another investment or take advantage of another opportunity.

[11:45] And then once that’s done, all of that cash flow, all of that monthly income is now yours to do with it what you want. And you might do some good things with it, like pay car insurance premiums or life insurance premiums or other things. Or you might commit that to your fund account. And that way, your fund account, instead of just being your opportunity fund of a lump sum, you have a fund account where it is a monthly amount. And maybe that creates an awesome date night for you and your spouse or a time for you to take your children on date nights or date days, right, where you go for a whole day. And you know that every single month, this money is going to be coming in for you to go do that.

[12:31] You know, that is a great point, and it’s almost getting quite meta. So what you’re saying is, if we have the opportunity fund, we can put it into some cash flow type of opportunities and then those cash flow opportunities will create more opportunities for us. And then it continues to build and build and build. So, you know, we’ve we’ve gone very layers deep and we can see that the results continue to bless us over and over and over. I love your use of the word meta, because that implies going higher, right? Yeah, and I’ve heard at least the way that I’m using it is we’re looking at that framework and we’re going deeper and higher, deeper into that. So we’ve we’ve looked at the framework of cash flow,

[13:19] but now we’re we’re almost times times two. We’re quantifying that. Yes, yes, yes. And you know that my favorite thing is when you can put one and one together and instead of getting three, like we all know that one plus one equals two. But when, you know, the common saying is one plus one equals three, like you really get some turbo charge going, you get some velocity going, you get some exponential things going when you get one plus one equals three. Well, when you bump that up even higher, that is when one plus one equals eleven. And that’s kind of what we’re talking about here is you you have this thing called your emergency opportunity fund and then you have this other thing called life.

[13:59] And when you put the two together, you get eleven different exponential amazing things that can happen because you put those two things together, your emergency opportunity fund and life. What a wonderful scenario summary there. Now, as a additional summary, here’s what I want to say for our listeners. If you don’t have your emergency and opportunity fund right now is the best time to start. Would you agree? Absolutely. And it can be started with a little bit of money, like ten dollars a month, ten dollars a week, ten dollars a day, whatever the number is for you. Get it started started in a jar. Seriously, just start putting dollar bills in a jar if that’s what it takes. And on the higher scale, one of the reasons that a lot of people

[14:47] don’t get very excited about their emergency opportunity fund is it has to sit in banks these days or money market accounts that earn nothing. And so if you are interested in a better place to store that emergency opportunity fund, please reach out to us. We have a special email for our podcast listeners. It’s hello at partners. Number four, prosperity dot com. And at that email, if you’ll just put in the subject line E.O. like emergency opportunity. And then I will help you learn more about where to store your emergency opportunity funds, where you can get excited about them, where they can do more good for you. They can earn higher rates of interest. They can be leveraged in very efficient ways.

[15:31] And when you’re excited about the place that your money is being stored, it’s a lot more interesting to actually do the work to get the money in there, i.e. save the money every month. And so that’s what we can help with. Thanks so much, Kim, for telling us about that. Make sure as listeners email hello at partners for prosperity dot com subject line E.O. And we are happy to answer your questions. Thanks for being with us again today, Kim. Absolutely. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you. Visit us at partners for prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.