Emergency Fund – How To Make Sure You Have Enough – Episode 344

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[00:01] Welcome to the Prosperity Podcast. Welcome to another episode of the Prosperity Podcast. Today, we’re going to have a different take on the Emergency and Opportunity Fund because life gives you curveballs and you need to prepare for those. So, Kim, help us understand some principles of the Emergency Opportunity Fund and then we’re going to take this specific question that thousands of people were commenting on. Awesome. So I’m going to begin with the mindset of what you want to adopt when life throws you curveballs because it’s easy to just jump into what you do with your finances and the mindset. If you can’t shift your mindset when the curveballs come, the curveballs are going to hit way harder. Would you agree? Absolutely. Absolutely agree. Okay. So

[00:59] we’ve all had them, right? I mean, curveballs come and they don’t go away when you get more money. Cash flow problems don’t go away. They just get bigger zeros on them. Yes, they do. I will share a personal example. We had an opportunity, okay, I’m using my words carefully, to repair the dam that holds up the lake in our property. It was something that we were able to pull off and as we inched forward into this project, we realized that it cost over 10 times what we thought. That’s not a good surprise. No, it was not. And so I could have reeled from that and gotten mad and said, you know, who messed up on the guess on the estimate? And where are we going to get this money from? And oh my gosh, blame here, blame there, scream there, fuss there, etc. But over time,

[02:04] I’ve learned that that doesn’t really get good results. In fact, it makes the curveball worse. And so I just took a breath as I’m like choking right on the bill that’s in my hand and said, okay, I am so grateful that we have the resources for this and we didn’t have them all readily available, but we were able to adjust. And so that shift in mindset is the absolute first thing that must occur. Even if you don’t have the resources, like find something to be grateful for. It could have been, oh, we actually had dirt on our property that could be used to fill the holes in the dam that were worse than was thought. So it wasn’t really anybody’s fault that it was a problem. It could have been grateful that we had somebody to

[02:57] actually repair the dam and that we caught it before the rain. I mean, there’s always, always, something that you can find to be grateful for, even if you have to dig a little bit. And that is what should happen first. Good point. So really there’s an invisible first step, which is to have a shift in your mental mindset so that you go from chaos or from worry or from whatever to gratitude. Maybe that adds in some calmness, some peace, and then you can look at it from a different perspective, Absolutely. Really well said. So then we address the next step. And I think your question was great. And this clarification of emergency slash opportunity fund is so critical. But the question is, what do we do when there isn’t enough money to handle the emergency? Correct?

[03:46] Correct. Yeah. It’s why I call it emergency slash opportunity fund so that it can be as big as possible, because you’re right, we may not have enough money. If all we do is follow the typical financial advice of three to six months living expenses in our emergency fund, and we stop there, and all of our other dollars are invested in such a way that we cannot access them. In other words, they’re in 401k plans or in IRAs. They’re in investments that are locked up. Those are awesome investments and potentially good opportunities. And yet, if it doesn’t help us handle the emergencies and the opportunities in our life, then are they doing us a disservice? So that’s why I want people to never stop building an opportunity fund. Like you can call your emergency number,

[04:37] whatever works for you. It can be 10 grand. It can be 100 grand. It can be Oprah Winfrey, 7 million. And you’re going to want to keep building an opportunity fund, which of course is way more exciting and interesting to build an opportunity fund. Even if you don’t know what opportunities might come down the road for you so that if your emergency is bigger than the typical three to six months, you are okay and you can handle it. You know what’s really interesting in this question that was posed online is it addresses something that people often forget about. And here’s the framework. One, whenever we get down on a spreadsheet and we’re thinking about how we’re going to save or how much we should

[05:17] save, we think about from our past experiences. Wouldn’t you agree? We’re not really projecting what’s going to happen in the future from reality. Is that how you’d seen it too? Yes. And I just learned recently that it’s really difficult for us human beings to project into the future because we just, more than a week or a month, we’re just not wired to think that way. We’re wired to think food on table today, shelter tonight. So projecting anything in the future is why it’s very difficult for people to save for the quote retirement thing. It’s just way too far out there. Absolutely. And so in this question, what happened was this, the person commenting said they didn’t prepare themselves because for example, an out of pocket max on a

[06:03] large health catastrophe could be $15,000. And so if your emergency fund doesn’t even have $15,000, but you happen to say, you’re young, you’re starting out, your monthly expenses are four grand, you have three months as 12 grand, well, you don’t have enough even to cover the out of pocket max. And now you don’t have any money for your living expenses and for everything else. So it was really interesting to see it from that perspective of looking and considering what your out of pocket max may be on your health insurance. And maybe we can just kind of dive just for a second. And if you can touch on disability insurance and how that plays in there for just a moment, and then we’ll come back to

[06:46] the question. Do you think that’d be helpful for this topic? Yes. So disability insurance is something that you can get at work, especially short term that usually would have maybe a one week waiting period up to say, 30 or even 60 or 90 days. And I think that can be a wise group benefit. If you’re an entrepreneur, you can get typically you’re going to get more long term disability, which would have like a 90 day waiting period or even a one year waiting period if you had the cash and a lot longer timeframe on the payout side, like five years or even to age 65. And it’s not something that I’m an expert at at all. And yet I know people that are so if somebody needs help in this area, they’re welcome to reach out to me and I can get them in front of people that are

[07:32] experts. I think this is also one of those times to have a credit card without any balance on it. So you have a credit limit, let’s say of $5,000. And ideally, you know, a dinner or a plane ticket on it and that’s it so that you would be able to access a credit card limit and not balance. So limit is the max. The balance is what you owe when some type of emergency cropped up. This is also why people have home equity credit lines. Again, ideally, with a limit, the top end that’s higher than any balance that you would have on it. And of course, this is also when people turn to families. Yeah, absolutely. And so, you know, there are multiple options. And, you know, I think the hardest part for me when I was

[08:18] doing the research and reading is that, you know, you can just see the despair from the first person’s perspective of saying, you know, they’ve done a part of saving some money, but they didn’t save enough. And now they have a real emergency. And that’s sad because they have that discipline. And yes, there are alternative options. Like you mentioned, you can use a credit card or you can use a home equity or, you know, you could have disability insurance. Or a GoFundMe account is an option as well at that stage. And I think for us, you know, the conversations we have on the podcast, and it’s one of the conversations that we have all the time, is that when emergencies happen, like we’re not going to think the way that we should. It’s really hard to be in gratitude.

[09:04] Yep. And having the ability to access funds and not have to go into a bank and not have to apply for a new credit card, meaning using the funds that are available through a life insurance policy, that has a lot of just reassurance and it can make or break you at that time. Absolutely. I just read investing for all college students, some article, you know, somebody jabbering away about all the cool things that they can invest in, nothing mentioned about savings, liquidity, the ability to have control over dollars, because investments typically are out of our control. They’re either locked up or they’re in the stock market or they’re in a government-sponsored plan of some sort. Disable, talk about disability, our ability to use the money.

[09:55] Absolutely. It’s just sickening. So I think for listeners as we have this conversation and as we’ve wrapped up first principle and it’s wonderful, it’s like music to our ears, to hear that the first step we can take is something all of us can do because it’s mental. It’s that shift of mindset to going to gratitude. And the second step it sounds like is really understanding on the health side, what would be the out-of-pocket max and really setting that discipline for long-term savings and long-term opportunity like what happened with the situation on your property. That could have been something that wrecked you for weeks, months, years, some people. But for you, it was, I imagine, just a moment and took a deep breath and said,

[10:38] okay, let’s carry on. So it was good. Very true. And did you know that dirt can be very expensive? I didn’t. I don’t get it, but it really is. And it’s not fun. Clay dirt specifically in order to fill set dam on Lake. But just think when it’s done, hopefully it’s done, done for good. I shared with my niece’s daughter who’s three years old that this was work that was going to last into her lifetime. Oh, that’s the way to look at it. Very true. Well, it’s a wonderful example. I think listeners that turn to this podcast aren’t just getting information about what’s happening in the financial world and what decisions, but it’s also that mental world of making the decisions that happen between your heirs

[11:29] and the perspective that you have will really transition and transform the outcome. So thanks for this conversation today, Kim. And we have some incredible episodes coming up. Make sure our listeners are subscribed to the podcast or you’re following on Spotify or your favorite platform. Thank you, Kim. And thanks to all our listeners. We’re always so grateful for you. Truly, truly. You’re why we do this. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.