The Emergency Opportunity Fund: What to Build Before You Invest Your First $100K – Episode 688

Transcript provided by the show’s production team.

[00:00] Spencer Shaw: Prosperity thinkers, welcome to the podcast. On this episode, it is a guest episode that Kim had with Martin, and they’re talking about investing before saving your first $100,000. So check out this guest episode Host: 21st Century Entrepreneurship with Martin Pyskerik Kim Butler: You’re awesome at making money How much of it are you keeping? Hi, my name is Kim Butler And I have been helping people keep even more of what they have earned for over 30 years. My favorite client is an entrepreneur, or at the minimum, an entrepreneurial thinker. ‘Cause we have a lot of salespeople that are high income earners, and they don’t technically own the company, but boy, are they good thinkers. And the first principle of seven principles of prosperity that we have is think, T-H-I-N-K, like turn that brain on, and entrepreneurs are great at doing that. And so as we delve in today in learning even more about how to keep those hard-earned dollars, I will be encouraging you to think. I find that one of the biggest pain points for, we’ll just go with entrepreneurial thinkers, is their taxes. And while I’m not a CPA, I absolutely know how to get your hard-earned dollars to grow without taxes. So there’s one thing about earning them, right? We’ve got tax issues there, and that’s

[02:00] really the CPA’s domain. But once you start to focus on how much you’re keeping, you really must think from a s- perspective of prosperity. And then principle number two, you must see, S-E-E. And what I mean by this is the big picture. And where most entrepreneurial thinkers have a misstep is they’re not seeing the big picture as it relates to their emergency opportunity funds. So we’re gonna have fun talking about that Emergency funds, like everybody talks about them, right? Well, you know what’s interesting, actually not everybody talks about them. Because when you look at the financial advisor landscape, so I’m talking about your stockbrokers, your insurance agents maybe, your financial planners, financial advisors, your typical

[03:00] what us in the industry call assets under management financial person, they’re not talking to you about your emergency fund because they don’t really care about it, because it’s cash for the most part, maybe money in the mattress. But that’s not their domain. They wanna go to investments. So let’s take a minute and talk about the emergency fund, which is the single biggest peace of mind orienter in families and in businesses. I mean, let’s face it, if you know you’ve got money to solve emergencies, you can sleep really well at night. So couple quick suggestions around this space. Number one, define what your emergency fund number should be. It could be six months expenses, it could be 12 months, whatever your number is. Make sure you include your spouse or if you have business partners, ’cause you should have an emergency fund for

[04:00] personal and you should have emergency fund for business. Let’s just say it’s 100K for easy math, and then fund it, right? Like, get that emergency fund funded, filled up so that you no longer think about emergencies. From that thinking perspective, that mindset, it is so critical that we have our emergency fund funded. And frankly, if you don’t have that done, you should not be having discussions about opportunities or investments or anything else. It happens all the time. People get it backwards. I meet people 40, 50, 60 years old, they’ve really never had an emergency fund. It’s credit cards, right? And that’s fine, that can work, but it doesn’t provide the peace of mind. You might think it does for you, but I would challenge you that it probably doesn’t for your spouse. Next up, let’s talk about opportunity funds.

[05:00] So now let’s talk about an opportunity fund. Well, what is that? That is where you pursue opportunities, right? So it is so important that we have cash, liquidity, whatever form you want to use to be able to pursue opportunities. Because as entrepreneurs or as entrepreneurial thinkers, as salespeople, as commission-oriented people with rollercoaster ride income, we run across opportunities. Might be a real estate deal, might be a marketing program for your business, might be the next partner that you wanna buy out. I mean, there’s endless opportunities when you have money ready to go. And what I find, especially for accredited investors, is you gotta have 100K, 250K, you know, those are the minimums for the real investments. And what happens is because we live our lives monthly, right? We have money coming in, we have money going out every month, maybe every quarter,

[06:00] we don’t often think about the larger lump sums that we need to build up probably on a monthly basis until we get that quarter million or whatever the minimum is for the opportunities that we wanna pursue. So it’s important to have what I call an emergency/opportunity fund. In other words, if your emergency number is 100K, then you wanna keep on building to, say, 350K so that you can build in that 250K that is the minimum lump sum for your opportunities, which are likely to be investments. And now, because you already have the 100K emergency fund number solved, funded, there for you and your spouse to sleep at night, now you can go forward and pursue these opportunities with lump sums even though it took you monthly money to build it up. And here’s the critical part

[07:00] The interest rate on these dollars is not that important. People get so obsessed with the money market that’s holding my emergency/opportunity fund, and is it 3% or 3.5%? It doesn’t really matter. You’re going to use it your entire life, but it’s not about the interest rate that it’s earning. This is not an investment. This is just a place to store cash or liquidity. What matters is that the growth on this fund is not taxed, and that comes into that second principle that I talked about, which is see, S-E-E, ’cause you’ve got to see that big picture. And so many people are fighting for the 3.5%, but they’re not aware that the taxation on that money market fund is the thing that’s causing them the problems. Now, as I said earlier, the interest rate doesn’t really matter. What matters is the money that you put in. But if you’re

[08:00] going to earn an interest rate, and you will, make sure that it’s not taxed, and there’s a very specific way, two different ways, that we can do that. Talk about that if we have time. But to summarize this section, let’s just build up that emergency fund. Keep on building till you get your opportunity fund. And, you know, for a young person, might be, like, 20 grand. Uh, Oprah Winfrey’s publicly stated hers is $7 million. So, you know, the zeros don’t really matter. What matters is what it does for you. Does it let you sleep well at night, emergency fund? And does it let you jump at opportunities, opportunity fund, when you have the money? There’s a fun saying from a old, old friend of mine, fact, he’s since passed on, and it is, “If you’re in a position of cash, opportunities will seek you out.”

[09:00] I mentioned we have seven principles of prosperity. Just quick backstory on these. I sat down in 1999 to write these. I’d been in the industry 10 years. Some of that was in banking, some of that was in your typical assets under management, stockbroker, life insurance agent space. And I thought, you know, everybody has all these financial products that they’re talking about all the time, but, and this is b- you know, right before the internet or kind of right as the internet was coming about, I felt what people really needed were principles to go back to to help them make decisions on their own. And so I literally listened to Father, Mother, God, that’s a thing that I do, and I sat down and I wrote out seven principles of prosperity, and they haven’t ever changed

[10:00] They’re all one word. You know, they have a description, but we already talked about the first two, think and see, S-E-E, seeing from a big picture. Think, turn your brain on, right? Mind on, whatever term you wanna use there. The third of the seven principles of prosperity is measure. Now, in the financial world, you’re gonna immediately say, “Well, duh. You know, you’ve gotta count your pennies,” right? Count how many dollars you have, count your emergency number, count your opportunity number, count your opportunities, whatever it is. But that’s actually not what I mean. What I mean by the word measure is we must measure opportunity costs. So in principle number two, when we were talking about seeing the big picture and your emergency opportunity fund, that’s opportunity gain, right? Well, in personal finance, there’s an

[11:00] opposite side to that, and it’s called opportunity cost. Now, this is actually an economic term. I didn’t make it up. It is something that we learned typically in high school and college, accounting, maybe economics. But you know, it was all about the big corporate case studies, and it was never really brought down to our own personal finances. So I find that most people don’t really know what opportunity cost is as it relates to their personal finances. So I’ll give a couple examples. And again, remember, we’re on principle number three of seven, measure, and you have to measure your opportunity cost because if you’re not aware of them, they can really bite you. So an opportunity cost example is, let’s say that I am interested in prepaying my mortgage, okay? So I’m not a mortgage broker. I love real estate as an investment but, you know, this is not my space from a financial product. But I see a lot of people, they really from a peace of mind standpoint don’t know what else to do, so they put extra money in their mortgage.

[12:00] Well, what they don’t realize is there’s an opportunity cost for that, and it’s measurable, and here is how we measure it. So there’s an obvious number, which is, let’s say your mortgage is 4%, so you’re putting extra money against this 4% cost, but that’s not how it gets measured. That extra money could be in an 8% investment, and so that is how we measure that opportunity cost, which when you step back and see that from the big picture, you realize really how inefficient that strategy is. Why would you ever take money that you could earn 8% on and pay off 4% debt, especially when we think about the fact that essentially what you’re building there is something called home equity, of which you do not control.

[13:00] Opportunity cost must be measured with the interest rate of the highest investment earning potential that you have. So maybe it’s not 8 for you, maybe it’s 10 for you, or whatever the number is. And so all things… Here’s another quick example. All things must be looked at opportunity cost wise. Go back to my comment about the taxes that you do not wanna pay on your emergency and your opportunity fund. If you pay taxes on those monies, so I’m talking about the 3.5% interest rate that you found that you’re so happy with, and now it’s gonna grow, and you’re gonna be taxed on that fund. When you pay extra money to the government like that, that’s an opportunity cost, because that’s money that you didn’t have to pay, and that has an 8% cost also. So this is what I’m talking about as it relates to measuring opportunity cost. So we have to

[14:00] measure it first and understand what we’re dealing with. And you know what? It doesn’t quit, right? If you give more money to the government or more money to your mortgage company than you should have, that literally has an opportunity cost at 8% for the rest of your life. And so that can be a huge number. And it’s super easy to stop it, right? Stop paying taxes on your emergency opportunity fund. Stop prepaying your mortgage. And there’s other ancillary opportunity costs that we have. You can’t always get rid of them, but sometimes you can, or you can at least reduce them. So that brings us through the three principles of prosperity, think, see, measure of the seven that we have, and this all applies to your personal finances Earlier, I mentioned my name is

[15:00] Kim Butler, and you can find me on Amazon. I have 11 books. They’re all on Audibles if you prefer to listen. I grew up in a house of teachers, so I love to write books. I’m working on my newest one that I’m so excited about. It’s called Prosperity Parents, and it’ll be for people to learn about parenting around money But I’m getting ahead of myself. I help people with our membership platform called Prosperity Pledge. It has one job, and that is to optimize your finances. So I talk so much about opportunity funds. The word optimize means to take a look at all elements of your personal finances. I’m not a CPA, I’m not a financial advisor. I just have a lot of experience helping people with their money and making sure that all of their dollars are working as efficiently as possible. That’s what optimize means.

[16:00] Now I have people on my team that help people with investments, that help people buy life insurance, that help people with other ancillary aspects. I have attorneys and mortgage brokers and CPAs that I can refer people to when it’s appropriate, yet my real work and my love is getting a brand-new person on the phone and helping them take action. And sometimes that means it is best that they do not work with me. I am not here to help everybody. I have a very narrow type of clientele that I help in all 50 states all over the phone, and it is that entrepreneurial thinker. Many of them own businesses. Many of them have what I call rollercoaster ride incomes. They’re typically fabulous at earning money, not so good at keeping it, and that is my realm. I encourage you to think about how

[17:00] you learn best. Do you like to read? Do you like to watch? Do you like to listen? Or do you like to get your hands on things? And when you go to prosperitythinkers.com/action, I’m sure that link will be in the show notes, prosperitythinkers.com/action, you’ll have an opportunity to grab our action accelerator pack. So it’s a prosperity action pack that has the ability to read, the ability to listen. I do have some videos, I’ll admit. As much as I love doing videos, I don’t have a lot of them on there, but there’s a few, enough for you to watch. And if you really gotta learn by getting your hands on, reach out to me, ’cause I have a solution for that as well, which is not easy in the personal financial realm when everything’s digital, right? Again, figure out how you learn best. Grab our action pack, take a look-see, and decide for yourself, do you want a

[18:00] quick conversation with me? I promise three things. You’re gonna have something to do, something to learn, and there will be no sales pitch. You’ll decide very quickly, as will I, are we a good match or not? And then you can go on about your day making progress.