In order to have a successful and prosperous marriage with the one you love, your marital finances must be in order and you must both be on the same page regarding money and how your household will approach it. Read the 8 things to do before getting married below for a comprehensive guide on getting financially prepared before your wedding.
1. Have a Conversation (or many) About Your Views on Money
If you’re engaged and planning on getting married, we hope you’ve already had all of the important conversations that a couple needs to have before tying the knot. Such conversations include discussions about:
One important topic that should be included in the above set of important premarital discussion topics is (but is surprisingly often not included) is a conversation about money and finances. We’re not sure why this is and we only have anecdotal evidence for this statement, but it seems that couples have an easier time discussing things such as how many babies they want, their religion, or where they want to live than they do discussing money, finances, personal spending and saving habits, and financial goals.
In order to maximize your chances of having a happy and prosperous marriage that creates wealth and prosperity for your household instead of poverty and stress, it is wise to have multiple discussions about money and how you relate to it before your wedding. These discussions don’t have to be formal in any way nor do they have to be very technical or sophisticated, but they must be honest and they must be courageous - you must not be afraid to tell your love and future spouse how you feel about all things related to money or finance.
Here are a few points you should cover in the conversation(s):
These discussions should be loving - you’re not fighting or trying to change your future husband or wife very quickly. You’re not going to not get married to someone you love just because they are an over-spender and because they are terrible at handling finances - although you will want to help them change so that you can have a happy and prosperous marriage. Remember you’re speaking to the one you love and the one you must care for - allow that to color your conversations.
Although you want to be loving and compassionate, you also don’t want to be too weak and overly understanding - your love for the other person requires that you help them become a better person in every way and that includes a better person financially. Additionally, money is important to a marriage (many marriages fall apart due to financial issues) so you’ll want to guide your relationship and your future household to a better financial place in a courageous way - you must muster the courage and the energy to improve things if your future husband or wife isn’t financially savvy or financially intelligent (or if they are financially irresponsible). A marriage isn’t just an economic partnership (it isn’t any longer at least - and it shouldn’t be if we are to realize our true potential as loving human beings) where each has an equal say in how things go. A marriage is (or, at least, should be) a sacred bond between two people in our modern Western culture that gives each partner a certain right to influence things and influence each other beyond what would be allowed in an equal partnership. It’s not that each of you owns 50% of your marriage - each of you owns 100% of the marriage and that ownership gives you a sacred right and a sacred duty to improve the relationship and improve the other person where they are weak or lacking.
2. Reveal All Debt to Each Other
This is simple but can be difficult to do if you have a lot of debt that you have not previously revealed to your partner (usually because you were afraid of being judged for it).
Hopefully, you’ve already revealed all of your debt to each other earlier in your relationship, but if you haven’t the first step is to find out all of your debt yourself. It’s surprising to see how many people don’t know their full debt balance themselves. If you’re not totally sure about how much money you owe, look into the following:
Once you’ve assembled a list of all your debts (this is an exercise that will prove very useful beyond just this step), communicate it to your partner. Your partner should do the exact same thing.
If you are hesitant to do this because of some sort of fear - stop being scared and even if you are scared, do it anyway. You’re going to marry this person and have a life with them - it is not acceptable for you to be willing to do all of the things that come with marriage and to commit your life and energy to this union but be unwilling or to too afraid to reveal all of your debt.
Revealing all of your debt to each other before marriage is a wonderful exercise. It might cause some drama or tension at first if things weren’t previously revealed, but once things are in the open, your relationship will improve because you will no longer be hiding things in your financial closet. Additionally, you will have set yourself up for a prosperous and happy marriage because by being aware of your household’s debt load, you will be in a much better position to deal with it and to gradually eliminate it on your way to building wealth and achieving financial freedom. A household that is confused about how much money it owes cannot be a financially successful and prosperous household.
3. Reveal All Assets to Each Other
This one should be easier than Step 2 if you have a lot of debt, but you still might find some resistance if you have a lot of assets. That’s somewhat understandable, but you must ask yourself what marriage really means to you and what you want from this marriage if you are unwilling to tell your future spouse what your current asset holdings are. Assets include everything you own (eg. cash, stocks, bonds, real estate, gold, silver, private business interests, etc.).
Marriage means combining everything - including your assets (unless you have a prenuptial agreement - more on that in Step 8). That means that when you get married, from a philosophical perspective, everything that belongs to you belongs to your spouse. Legally that may not always be the case, but we’re not talking about marriage law here - we’re talking about what marriage means beyond the letter of the law and what will set you up for a successful, prosperous, and happy marriage. If your partner is going to inherit everything you own when you’re married, shouldn’t they be aware of what you own today? Isn’t it much wiser to prepare each other for what is to come than live in some dark illusion?
Again, some people might hesitate, feeling that they should keep their assets separate or feeling afraid to reveal how much or how little money they really have. That is possibly understandable, but it cannot become an excuse to avoid this very important and very necessary part of marriage - combining everything with your husband or wife. If you cannot allow your future spouse the knowledge of what you have, how can you possibly enter into the sacred bond of marriage with them?
Of course, if your spouse has proven to be very irresponsible with money and reckless with finances, you might be unwise to go beyond just revealing what you own. In that case, you’ll still want to reveal your assets, but you will want to make sure that you are in total control of them now and possibly even after marriage. This will prevent your newly formed household from misbehaving with money - if your spouse misbehaves with money your household misbehaves with money. This can become a touchy issue if your future spouse is very irresponsible with money because he or she isn’t likely going to easily accept you simply revealing assets but not allowing them to control them in any way. If your spouse is prudent, mature, and honest with himself or herself, however, they will likely understand that they have proven themselves to be an unworthy recipient of control over of a lot of money or a lot of assets - they’ll understand that you are somewhat justified in your caution and that they’ll have to slowly prove to you that they have changed their ways and are committed to being in a healthy and prosperous union with you. If they don’t understand, however, you’ve got a bit of an issue on your hands that is now out of the realm of personal finance and household finance and in the realm of relationship problems - you might consider seeking some sort of relationship counseling or premarital counseling before tying the knot in such an unpleasant situation.
4. Check Each Other’s Credit (FICO) Scores
This is a simple one and should be easier than both Step 2 and Step 3 because it’s not as important for your financial future - although your FICO score (aka credit score) is somewhat important, it isn’t nearly as important as cold hard assets and the debt that you owe in determining your household’s financial well-being and financial future.
Here are are few reasons why a good credit score is important:
The good news is that once you’re married you’ll be able to rely on your spouse’s credit score if theirs is good and yours is bad (assuming you are both applying for the financing). If both of you have poor credit, however, then you’re in a tough situation because you might find it difficult to finance purchases (and do some other things that might require a good credit score) in the first few years after marriage until you two are able to rebuild your credit.
Remember, there’s a fine line between being too concerned and not concerned enough about your FICO score and credit history - be concerned but don’t obsess over it or think that your credit score is the most important thing in your financial picture. Your abilities to earn a solid income, to live below your means, to save money, are far more important than your credit score because they actually determine how much money you have in your pocket and in the bank - a credit score is only a number that is supposed to predict your creditworthiness (how likely you are to repay a loan) but you can’t live on your credit score - your credit score doesn’t pay your rent or put food on the table or pay for your vacation.
You can check your credit score in a variety of places. One free service is Credit Karma, although there might be other (possibly better) options out there.
5. Save to Pay for Your Honeymoon in Cash
After your wedding, if you plan on doing a honeymoon (there’s nothing wrong with not doing a honeymoon or postponing it), make sure you pay for it with cash - do not go into debt to pay for a vacation (yes, a honeymoon is a vacation) no matter how important you think it is.
You will be making a big mistake if you finance your honeymoon with credit cards and other forms of debt. You’ll return from the trip but you’ll be stuck with the debt for many months or possibly years. The debt will prevent you from achieving other financial goals and the debt will be attached to a vacation you already took - you won’t able to go back and “sell” the vacation as you would be able to sell your house if you decide it was an unwise purchase. If you pay for your honeymoon with cash, however, you’ll come back home calm and you’ll be able to continue your financial program (or start one) as a married couple and you won’t have to first pay down thousands of dollars of useless credit card debt - debt that was incurred for a luxury purchase.
If you do have the cash to pay for the honeymoon, however, don’t hesitate to use the money you’ve saved up on a nice (but reasonable) honeymoon with your future husband or wife. Some financial nerds and super-savers might think it’s better to instead invest the money rather than spend it on a honeymoon after a wedding. While this might be a good move when considering only your financial life, your spouse (who might not be a super-saver or might really want a honeymoon) might find the entire notion of foregoing a honeymoon to instead save or invest the money very unromantic and they could be disappointed with such an idea. Remember, life isn’t just about your net worth. So, if you’ve got the money for it and it’s something you two want to do, do not hesitate to take a honeymoon with your new spouse and don’t feel even a little bit guilty about doing it - enjoy your honeymoon and remember that the only reason we want a lot of money and a lot of wealth is because we want to help people and have amazing experiences in life. Money for money’s sake is really a pointless and dark proposition that won’t make neither individuals nor societies truly rich in the broad and proper sense of the word.
Additionally, do not tap into your emergency fund to pay for your honeymoon. Tapping into your rainy day fund to pay for such a luxury is almost as bad as going into debt to pay for it - you know very well that a honeymoon is not considered an emergency.
6. Save for Moving Expenses and New Furniture
Most couples do some sort of living space change after marriage - either you’ll move in together or you’ll move somewhere new if you’re already living together. You’ll want to save up for any possible moving or moving-related expenses and pay for them with cash. Whether you’re just planning to buy a new couch for the living room in the apartment you currently live in or you plan to buy a new house in another country, if you anticipate some expenses for settling in together as a married couple, save for it immediately and aggressively to make sure you can pay for it all with cash. Do not make the mistake of burdening your new marriage and your new combined financial house with useless debt.
7. Consult with Family About Potential Help You’ll Receive from Them
Some new marriages are lucky enough to be blessed with financial support and financial assistance from parents, grandparents, or other family members. If you’re lucky enough to have parents or in-laws who will help you start your married life by contributing financially, be thankful for this and resolve to use your luck and their assistance as wisely and as prudently as you can.
It’s a good idea to speak to your parents (or other family members) well before getting married to understand how much they will:
Generally, each person should speak to his or her parents alone without the presence of the other future spouse - this makes things much more proper and pleasant for everyone and is in line with common courtesy. You know your parents and you should have an idea of their financial means and what they think they’ll contribute already so you shouldn’t be too surprised after the conversation(s). The point is to understand what’s going to happen so you can effectively plan for the future together.
8. Discuss Prenuptial Agreements and Make a Decision
Some people come into a marriage with substantial assets or with substantial incomes and wish to protect their assets or future incomes in the case of divorce. We won’t go into whether prenuptial agreements are “right” or “wrong” here, but you’ll want to discuss a prenuptial agreement with your spouse in a very tactful, respectful, and loving way if you want a prenuptial agreement set up before entering marriage.
Some people view prenuptial agreements as unromantic no matter what assets each partner brings into a marriage and no matter what incomes each person earns. Make sure to understand this if your partner is opposed to it. If you’re opposed to it and your partner wants a prenuptial agreement, understand where they are coming from as well. Prenuptial agreements are popular and most couples generally are able to relatively easily agree about having or not having one, but sometimes the issues can get touchy when a couple has never discussed this and when one partner has a disproportionate net worth and income relative to the other. Usually, prenuptial agreements are more popular among older couples, as younger couples often have not had the time to build enough wealth or develop high enough incomes to make a prenuptial agreement very useful.
Saving Money is Not Enough - You have to invest your savings if you're going to outpace inflation and be able to rely on returns over labor income
Saving money is the first step to financial freedom and wealth, but it is usually not enough. Simply saving money will force your entire financial plan to rely on your ability to earn and save. Investing the money you saved, however, will create a situation where you money could potentially work as hard as you do - earning every single year and compounding those earnings in order to earn more and more in subsequent years. Read the piece below to get a good grasp on why you likely must invest your savings.
Saving vs. Investing
Saving money is not the same as investing money. Although to invest money, you must first save it, saving and investing are two very separate things.
First you must earn an income. You can earn an income by selling your hourly labor or you might earn an income in other ways (eg. investment income, residual income from intellectual property, etc.). Regardless of how you earn an income, you must decide what to do with the money that is coming in. A prudent person will never spend his or her entire income - they will instead make sure to live below their means in order to be able to save a portion (hopefully a substantial portion) of their income for various things:
You save money in order to invest, but just because you save money doesn’t mean you are investing it or that you’re an investor. Investing money is a very specific action that you take with your money in order to grow it in a calculated way.
If you put money into your checking account, into your savings account, under your mattress, or in your backyard, you are not investing it - you are merely saving it. Even though a savings account pays you a rate of interest, it doesn’t qualify as proper investing because the rate of return is certain at the outset and because the goal of such a product isn’t to grow your money but to keep it safe. Additionally, this will almost never outpace inflation - you'll lose purchasing power every year on average. For more, read the article above on what constitutes proper investing.
So, why do we have to invest?
You must invest because saving is not enough - if you are a salary earner or a small business owner or self-employed (if you’re never going to strike it rich but instead rely on a monthly income), you will never become very wealthy by just saving money every month unless your income is incredibly high. You must invest because of simple mathematics - because the numbers don’t make sense otherwise.
A Simple Example of the Power of Prudent Investing
Let’s imagine two households: Household A and Household B. Each of our households earns a decent income although Household A earns more. Both of our households are hard-working and both have goals for the future - they both want a nice nest egg to retire on and to enjoy.
So, we see that Household A and Household B end up with about the same amount of money in 30 years but had vastly different approaches - Household A just saved money while Household B not only saved, but also invested.
The reason Household B did comparatively better than Household A (it saved almost 10 times less per year but achieved the same results) was because Household B worked for its money and then it put that money to work - Household A just worked for its money.
Work for Your Money - Then Have Your Money Work for You
Investing allows your money to work hard - investing allows your money to grow and compound. By just saving your money and not putting it into ventures or schemes that will allow it to grow, you are relying only on your hard work to get you to your financial goals. Financially wealthy and wise people, however, realize the power of money - they see its power to earn a return and to allow that return to compound over time. The compounding that occurs over time is like a snowball rolling downhill, picking up ever-increasingly large amounts of snow as it continues.
Saving alone isn’t usually enough to reach your financial goals unless your income is sufficiently high and you have the willingness and ability to save very large amounts of money (to sacrifice a lot) - investing is a much easier and much more effective strategy for building wealth.
The advantage of investing is simple - with investing your money works for you. With saving only, however, your entire nest egg is dependent on your ability to save. By investing, you are allowing your money to earn a return and the compounding of that return beautifully increases your wealth over time.
The Complete Guide to Saving $1000 - Whether it's your first $1000 or you need extra cash, here is how to you can quickly earn and save more money
Every journey begins with a single step. Have you heard of that saying? You’ve probably heard of it and although it might sound cliche, it is extremely insightful. If you don’t have at least $1000 put away you have not taken your first step on the path to financial freedom - it’s time to take it with the help of Pennies and Pounds in this in-depth guide. The first step on your path to financial freedom and wealth is putting $1000 away as a starter emergency fund - that fund will stand between you and the financial emergencies that will come your way in the future. Without even $1000 saved, you are exposed to extreme risk because even a slight financial emergency has the potential to wipe you out financially or put you into debt. Read the piece below for a comprehensive guide on getting to your first $1000 and you’ll be well on your way to financial success and financial freedom.
If you don't have $1000, you're in a dangerous situation!
Whether you are 18 or 80, if you don’t even have $1000 in your pocket in the developed world, you’re in a dangerous situation and you must immediately do the things below to build up at least a basic $1000 rainy day fund.
A rainy day fund or an emergency fund is a required part for most financial plans because it protects you in various ways. You can read more about why you need an emergency fund in this very comprehensive article that will surely make you look at your finical life in a different way (check this article our immediately after reading this article):
However, if you don’t even have $1000 saved, we can’t yet be concerned with a real emergency fund because you don’t even have a tiny buffer between you and life’s uncertainties and financial storms. An emergency fund will almost always be more than $1000 if you’re an adult with living expenses (and will definitely be more than $1000 if you are running a household), but we must take the first small step, moving you from the absolute nakedness of not even having $1000 saved to putting a $1000 financial blanket over you.
Without any money saved in a rainy day fund or emergency fund, you will have trouble handling the following possible financial emergencies:
Additionally, without even a bare minimum of $1000 saved, you will likely find it very difficult and stressful to deal with expenses that aren’t emergencies, but that are rare (eg. those that occur once every few months, once every few years, etc.) - expenses such as:
If you don’t have $1000 saved, you probably know the above already and you probably already know how stressful life can be without some sort of financial cushion, but we must reiterate it in order to really demonstrate how important it is that you act now and act quickly to put $1000 away.
Once you have your $1000 saved, you will feel much better. Although $1000 isn’t a proper emergency fund for most people, you’ll still have some breathing room in your life once you are able to put away your first $1000 - you’ll have some cash put aside for when life comes knocking on the door. You’ll know that you can handle small financial emergencies easily because you have the money put aside for them. You’ll also feel proud for doing it because getting to your first $1000 (regardless of your age) isn’t an easy task. If you can get to $1000, you can move forward to building up a full emergency fund and then building some wealth for you and your family.
This is why you don't have $1000 already
If you don’t have $1000 put away already, it’s likely for one of the following three reasons:
First, let’s address the third category - if you recently dealt with a financial emergency that wiped you out financially. That’s a very tough situation to be in. However, if you had an emergency fund before the financial emergency and if you had some wealth built up, you actually did pretty well. Yes, you’re back at square one now, but you have proven yourself capable of building an emergency fund and building wealth. So, you can do it again, even though it may seem incredibly hard now. In a way, we’re not as worried about you as we are with those in the first two categories. So, ask yourself whether or not you were doing well once financially and whether or not your current situation is just because of some finical emergency. If that’s the case, get back up, look into getting some more insurance in place to guard you in the future, and begin anew, with the knowledge that you’re capable of doing what’s right for your finical life. There’s deep dignity in being able to take a hard punch to the chin and having the grit to get back up again - have the grit and get up.
Now, on to the first two categories - these are serious issues because they demonstrate fundamental or structural problems with your finical life - it’s not that you had a run of bad luck. If you’re in the first two categories, some drastic but focused changes will need to be made so that you can get on the right track finically and put some money aside for yourself and your family.
1. Don’t Make Enough Money
This is tough and everyone should understand this. After the Great Recession, the US economy (and generally speaking, the global economy) has recovered, but it has been an unusual recovery compared with other economic recoveries in the last century - it has been a recovery in the stock market and the GDP, but not in employment. Yes, the unemployment rate has dropped, but the definition of the term “unemployment” is very precise and that precision can be misleading when people exit the workforce. We won’t go into the details of how unemployment is measured or the technical definition of the unemployment rate in this article, but it is important to note that just because the unemployment rate has gone down doesn’t mean that things have gotten much better in terms of employment - people might be employed but underemployed and some people might have dropped out of the labor force altogether (and, therefore, wouldn’t be counted as unemployed per the current definition of unemployment in the United States). Those are a lot of words to explain what you probably already know, just because you have a job doesn’t mean it pays enough and doesn’t mean you have enough hours at it to make a good income.
If you don’t have an income at all currently and are on your own (if you’re pursuing some sort of education and are living with parents or other relatives you’re not really on your own yet) then you’ve got a bigger problem than those that are underemployed - you’re not even earning anything. That’s an understandable position to be in - the economy of the United States and much of the Western World has shifted and is continuing to shift towards a more capital-intense knowledge-powered economy that is making many people simply unemployable. What this means is that many people aren’t unemployed because they are lazy or don’t apply for jobs or because they somehow failed to get the right skills - it’s that we’re transitioning towards an economy where there are no right skills for you to have, an economy where not everyone can have a job because there just aren’t that many jobs available. Now, we know it’s a tough situation for many people, but that can’t stop you from doing your best to earn some sort of income and putting some money aside for the future. You cannot afford to be left in the backwash of the transitioning global economy - you must find the energy to do something today to move forward while at the same time creating a gameplan for the future.
Whether you are underemployed or unemployed, you should likely get working right now in some part-time job or freelance gig. The job doesn’t have to be something you see yourself doing one year from now, it just has to be something that can reliably bring in extra cash every week and every month, allowing you to put some money aside to get you to your first $1000.
A few potential side gigs to earn extra money fast
Pizza Delivery: This is a slightly old-school recommendation for a part time gig but it can still work in the right situations and for the right people. It doesn’t pay very well hourly, but you have the potential to earn a decent amount in tips if you work in a good area and are personable.
Drive for Uber or Lyft: This seems like the 21st-century version of the pizza delivery job. It’s becoming common knowledge that Uber, Lyft, and other firms are attempting to move away from human-based transportation, so the opportunity to earn money with Uber and Lyft might not exist a decade from now, but you can definitely take advantage of it today as long as your car meets their requirements.
Cashier: This works best for seasonal work - times of the year (usually the holidays) when business picks up and extra workers are temporarily needed. There are a few disadvantages with this type of job, however. You can’t set your own ours and you can’t work extra hours. Freelancing or driving for Uber, for example, you can decide to have an intense two weeks and drive a lot of hours to earn some extra cash quickly - with a typical cashier (or similar) job you just can’t do that and you’ll have to be ok with the money trickling in slowly. Additionally, the pay is likely to be low with few or no opportunities to earn tips.
Upwork: If you have some advanced and in-demand skills, check out Upwork, an excellent way to freelance online. It might take some time to build up your profile so you’ll have to be a bit patient compared to other jobs (you don’t start earning much immediately) but you have the potential to earn a very good hourly wage and you can work from anywhere.
Fiverr: Similar to Upwork, but paying less, Fiverr allows you to freelance and take jobs from anywhere if you have in-demand skills.
If you can get a side job (or two - and possibly three), even temporarily, you should be able to put enough money away every week or every month to build up your first small rainy day fund of $1000. If you’re in this camp, however, you need to make sure to stay vigilant and forward-looking because you don’t want to:
The ideal situation is you working now and putting money aside while developing some sort of gameplan to earn more in the future - earn more not just by working more hours but by earning a higher hourly wage. To earn more per hour, you’ll need to improve yourself - you’ll need to improve your technical or job-related skills, your professional skills, and your overall personality. Think about where you want to be in a year and in a few years and move in that direction, getting the necessary skills and experiences so that you can end up in the job you want (and can realistically obtain).
2. Earning a Decent Income but Spending Too Much
If you’re in the camp of people who earn a decent income but who overspend, you’re in the toughest camp because some deep changes will need to be made in order to make financial progress - changes that might take less time than a side job but that are more mentally and spiritually difficult to accomplish and changes that you’ll have to stick with for the long run if you are to permanently improve your financial situation.
What qualifies as a decent or good income?
Now, by decent income, we don’t mean earning six figures or earning enough money that all financial irresponsibility will be wiped away just by the sheer volume of money coming in. By decent income, we mean an income that is around the median income of your community or state. There is no hard and fast rule for this, but you could consider earning anywhere from 75% of your community’s median income as a decent income that should easily allow you to put away $1000. If your household makes a median income, in the vast majority of cases you should easily be able to have $1000 put away - if you don’t seem to ever be able to do this then it means you are likely consistently overspending and living beyond your means even though your means allow you to live a reasonably comfortable life while still saving for your future and building your financial house.
Read this interesting Wikipedia article that lists the median household incomes for every state in the United States
To save more money, you must cut out unnecessary spending vigorously
If you’re making a reasonable income and you still don’t have $1000 saved, you must likely cut down on your spending. It’s very difficult to write general statements for a general audience, but it is likely that most readers who earn an income 75% of the median in their communities (or more) and are unable to put away $1000 likely have a problem with overspending and understanding the difference between necessities and luxuries.
It is very difficult to move from a lifestyle of reckless wastefulness to lifestyle of frugality and discipline. Many people try for a little while but then return to their old ways of overspending. It seems that there are underlying reasons for many people’s dysfunctional financial habits that cause them to behave in irrational and self-destructive ways. We won’t go into them here in any depth, but here are a few possible psychological issues or neuroses that potentially cause people to behave recklessly with their money (and overspending is definitely reckless financial behavior):
Now, we all feel bad about ourselves at times. We all doubt ourselves at times. We all have occasional fears of being in poverty and many people have been spoiled in certain ways. However, many of these people are still able to live financially responsible lives because they do not allow their internal psychological issues and neuroses to influence their pocketbooks, their bank accounts, and their wealth building programs - they understand that the cost is just too great and that nothing will be improved by mishandling finances. However, handling your finances properly and spending less then you make (living in financial dignity) will allow you to improve both your financial life, your personal life, your professional life, and your internal life - it will make you into a happier and stronger individual.
I know the above is easy to say but hard to do - it’s very hard to overcome yourself and stop misbehaving financially. However, if you are to ever build wealth and live a financially stable and successful life you must begin to improve your interactions with money and your ability to handle it properly. You must begin by saving your first $1000 so that you may go on to amass $10,000 and $100,000 and hopefully much more than that in time. But, you’ll never be able to amass any real and lasting wealth if you are governed by your own psychological neuroses and your momentary whims and desires to spend money on frivolous things when you don’t even have $1000 put away for yourself.
To the Details - Start Putting Away Some Money Every Week
If you put in a concentrated effort into building up your wealth, you’ll be able to save your $1000 in less than a year (and possibly in less than 3 months if you can save more).
Don’t save every month - do it every single week. If you attempt to save every month you might end up at the end of the month with not enough to put away. You will run the risk of not having the needed amount if you do it every single month. However, if you save a bit of money every week, it will be both painless and it will assure that you actually are able to put enough money away. Weekly savings will be relatively painless. Weekly saving doesn’t even require receiving a weekly income - you can be paid biweekly or once a month and still successfully save every week because you can save a very small amount every week (an amount possibly less than the cost of a single skipped restaurant meal).
Take a look at the graph below to see how long it will take you to reach $1000 by saving either $25 per week, $50 per week, $75 per week, or $100 per week. Obviously saving more is better, but even if you can put away $25 a month, you will have your $1000 in less than one year - you will transform your financial house from a desolate and empty lot to a lot with a slowly building solid foundation (a foundation on which you will continue to build upon).
Additionally, you will want to create a monthly budget. This is tough and you can expect that you’ll be way off on your budget for the first couple of months, but things should get easier if you keep at it. In creating a budget, plan on where each dollar will go to next month and do your best to stick to it. Next month, before creating another budget, evaluate the success and failures from the previous month. If you’re married or financially intertwined with a partner, make sure to create the budget together. Not both of you have to put in equal effort (some people are more financially savvy or more interested in personal finance than others) but both of you should have a seat at the table and both of you should have a say into how the budget is determined if you are to do this in a proper and overall healthy way.
If you don’t have $1000 saved up, you’re in a dangerous situation because you are exposed to both financial emergencies and one-off expenses (those expenses that are not monthly but that instead occur yearly, every few years, or once in a lifetime). Without having even a very basic $1000 rainy day fund, you are in a very precarious situation which will prevent your from building wealth - if you can’t even save $1000, how will you save $10,000 or $100,000 or build lasting wealth. This should motivate you to put in the work and make the necessary sacrifices to get to your first $1000. The good thing is that $1000 isn’t very hard to save up - as the above graph demonstrates, even putting away an extra $25 per week will get you to your $1000 in a lot less than a year.
Depending on your current situation (not earning enough vs. big spender), you will have to approach things as described above. Be aware that the problem with your current financial situation isn’t just the numbers, but it is with your heart and your soul also - never forget that who we are inside will manifest itself in our finical life also. Be courageous as you make the necessary external (getting an extra job or building a budget) and internal (understanding why you overspend if you’re in the second category) changes to start on the path to financial success and finical freedom.
If you’ve had a financial emergency that forced you to dip into your emergency fund, rebuilding it quickly is crucial to your financial success even though it might seem like a difficult and unpleasant task. Read the article below to get motivated and to find out how you’ll be able to rebuild your emergency fund very quickly.
If you have weathered a financial emergency by tapping into your emergency fund, I want to take a moment to congratulate you. I know things might seem difficult now and even if the financial emergency is gone, it never feels good to have to tap into your emergency fund. However, I congratulate you anyway because the fact that you even had a rainy day fund in place puts you above so many others who must weather financial emergencies with no rainy day fund - they must either resort to going into debt to pay for the financial emergency or they must liquidate some of their investments. You, however, planned ahead and had a rainy day fund in place to guard you and your household against life’s financial storms - instead of hoping that those storms wouldn’t come, you knew they would one day arrive and you set out to put an emergency fund in place between you and the harsh realities of the world.
Now, however, it is time to once again buckle down and quickly rebuild your emergency fund. You can’t waste time by slowly rebuilding your emergency fund. At Pennies and Pounds we recommend building up your emergency fund very quickly and, in the same light, we recommend rebuilding your emergency fund very quickly after a financial emergency.
First, You Need to Get Motivated. Don't have the energy to build an emergency fund again? Too bad - you've got to do it and it's not as hard as it might seem.
I know how hard it is to weather a financial emergency and to see the emergency fund you built with your sweat, your toil, and your sacrifices be depleted to take care of something that shouldn’t have even happened in the first place. You might not feel that you have the internal energy to build up your emergency fund quickly again - you might feel like you’re not up for it. This is an understandable feeling, but you cannot let it prevent you from putting in the necessary effort into rebuilding your rainy day fund quickly, an integral part of your financial success and well-being.
The truth is that even if you feel like it’s too much trouble to rebuild your emergency fund, you’re probably wrong. It’s not as hard as you likely think it is. You built up your rainy day fund once and you can do it again. In fact, it will be easier to do it again because you’ve already done it once before - you have proven yourself capable of achieving the important task of putting a proper emergency fund in place.
Building up your emergency fund won’t take much time, but it will take some concentrated effort. The good news is that the effort you will have to exert isn’t particularly difficult as you will see below - it might be slightly physically taxing, but it won’t likely be overly mentally or emotionally taxing. You’ll need to buckle down for a bit, but it won’t be long or particularly arduous.
Use the Following Strategies to Quickly Rebuild Your Emergency Fund After a Financial Emergency
1. Get a Temporary Second Job: Get a second job doing something on the side. Dave Ramsey's pizza delivery job has been the classic recommendation, but today many more options are available. You can drive for Uber or Lyft if your car meets the requirements. You can tutor if you have skills that are in demand. If you have the skills, it might be possible to do some freelance consulting. Even a weekend job as a cashier is a decent short-term gig if it helps you supercharge your emergency fund savings.
2. Sell Stuff: Selling stuff is a tried and true way of getting your hands on some cash quickly. Some people have more to sell than others, but if you have things that you aren't using anymore, try to put them on eBay or Craigslist.
3. Cut Down Big Time: Most households have some fluff-room (that's not a technical term). What I mean is that most households aren't just buying the basic necessities, but are instead buying extra luxuries. It might be possible to buckle down and cut out a lot of unnecessary (although pleasant) expenses for a short while. It obviously won't feel great while you're doing it, but it's not for long and once you have your emergency fund in place you can go back to a normal lifestyle secure in the knowledge that you have a cushion of cash in place against all of life's crazy unpredictabilities.
Using the above strategies, you can quickly rebuild your emergency fund after a financial emergency. We highly recommend you rebuild your rainy day fund as quickly as possible so you can sleep easier and so you can return to focusing on your other long-term financial goals such as investing for the future and building wealth.
1Even though it might be hard to rebuild your emergency fund after a financial emergency, it is a necessary action and you must do it in order maintain your financial house - in order to keep a buffer between your household and the financial storms that might come your way again.
Now that you’ve already had a rainy day fund and weathered a financial storm, it will be easier to rebuild it than you think - you’ve just got to start and you’ll see how quickly you can rebuild your emergency fund using the tried and true tactics above.
To be successful and to live a life of dignity and self-respect, every independent adult who is of sound mind must live below his or her means. Living above your means is just unsustainable. Living at your means might work, but it isn't enough.
1. You Cannot Reliably and Reasonably Build Wealth If You Are Not Able to Live Below Your Means
Assuming you are not set to inherit a large sum of money and that you won’t have a large and unexpected windfall such as winning the lottery, to truly have a stable financial life and to build wealth, you must live below your means. In fact, even if you do inherit a lot of money or win the lottery or have some other financial windfall, you must still live below your means if you are to maintain and grow your newfound wealth.
The principle of living below your means is a fundamental principle of personal finance and wealth building - it lies at the bedrock of your financial future and without the ability to live below your income (be it earned income, investment income, royalties, dividends, or any other sort of income), you will never become rich.
There is a quote that is relevant here from the book The Richest Man in Babylon - “a part of all you earn is yours to keep.” That quote is deeply fundamental to building wealth and every person who has accumulated riches throughout history has understood the principle the quote is elegantly trying to convey. What that quote means is that when you earn some money, you shouldn’t give it away to everyone else - don’t give it all away to your supermarket, to Apple, to Samsung, to Microsoft, to AT&T, to Verizon, to Comcast, to T-Mobile, to Netflix, to your favorite stores at the mall, to Amazon, to your favorite restaurants, to Starbucks, to your mortgage company, to your car company, to American Express, to Visa, to MasterCard, to Discover, and to all of the other people and businesses who work tirelessly to get some of your hard-earned money (and even if your money wasn’t hard-earned, you still shouldn’t give it all away). If you give all of your money away, you will have none for yourself. And if you have none for yourself, how can you become wealthy over time?
This concept from The Richest Man in Babylon is deeper than you think. I understood it right away when I first read the book at the age of 18, but when I told people in my family and some of my friends about this concept that I found so intriguing, they were puzzled. I got two types of reactions:
I understand both perspectives, but I know they are both confused and deluded. I also believe that purely explaining it won’t work - one has to actually take the effort and put some money aside one month and see what happens.
2. It will provide you with dignity
A wise man once said that “there is no greater dignity than living below your means.” This is very true. Humans need dignity and self-respect. As adults we have a deep desire to find our own way, to pay our own way, and to earn our own way. We don’t want to depend on the assistance of others or the assistance of the government (which is the same as the assistance of others).
Of course, I don’t suggest that assistance to those who are in difficult times should not be given. Nor do I suggest that those who are in difficult financial times should feel even a little bit unpleasant or ashamed by receiving help - we are all brothers and sisters on the Earth. However, I do have a basic understanding of human nature and I know that no matter what, an adult wants to be self-sufficient and make their own way.
I believe a part of the reason we want to make our own incomes and make our own way has to do with our ancestral past. Living in small communities in antiquity, everyone had to contribute or else the entire community would suffer. We have a desire to please others, to create value for the world, and do something good for our fellow brothers and sisters. This value creation is rewarded financially (although only usually and imperfectly).
Additionally, the knowledge that you are able to live below your means will give you dignity and self-respect because you will know you are a disciplined person who is able to steer the course of his or her own ship instead of being blown from place to place by the wind. By living below your means, you will have the knowledge that you can make it, that tomorrow will be ok, and that you don’t need to depend on others to survive or thrive (again, not that there is something wrong with depending on others for brief or long periods of time). By living below your means, you will have the comfort knowing that there is robustness in your life - that you are a resilient person who can thrive even in the face of difficult times and uncertainty. A person who consistently overspends is a person who lacks disciple and who cannot be confident in his or her ability to whether life storms well - that person will wonder about what will happen should things get worse. Instead, we must strive to live life well, but in a manner that reflects our understanding of financial principles, our disciple, our courage, and our resilience.
Key Takeaways - Living below your means is a prerequisite for a healthy financial life
First, you must understand the importance of living below your means. Without that understanding, you won’t ever live below you means because it’s just too hard to do it - you’ll do it for a bit of time, but you’ll give up if you aren’t passionate about it. Read this blog for inspiration, motivation, and practical tips
If you’re an adult who is independent (living on your own with an income), it’s time to start living below your means. List your income and create a monthly budget for the next month that has a certain percentage allocated towards savings and paying down debt. If this is your first budget, expect to fail badly. However, don’t give up - keep doing it and by month six, you’ll be pretty good at it.
"A part of all you earn is yours to keep."
Are emergency funds still needed in an age of easy credit, liquid portfolios, and broad governmental welfare programs?
Today, if you live in the developed world, you have an unprecedented financial flexibility that will allow you to get your hands on cash very quickly - unlike most of human history. So, do you still need a rainy day fund in the 21st century when you can just use a credit card or sell your investments easily? The answer is YES - read the piece below to understand both sides of the argument and to find out why you still need an emergency fund even in today's modern financial landscape.
Can you not have an emergency fund in place and still be in excellent financial shape? That’s a tough question because a rainy day fund lies at the bedrock of a good financial house and is recommended by most in the financial media and by most financial advisors. However, some say that an emergency fund is an outdated concept in today’s world of very liquid assets and easy access to credit - they argue that you can be in great financial shape without allocating some of your net worth into an emergency fund held in cash. Instead, they would argue, you can have the money you would have allocated to your rainy day fund invested in the market where it would earn a higher return. Are they correct or are is an emergency a timeless piece in your financial puzzle and still required even today?
First, we’ll begin with the argument that AGAINST an emergency fund today…
The World Used To Be Different
Let’s go back 100 years into the past and look at an average middle-class person’s financial house. That person likely had:
So, 100 years ago, and basically any time in human history, your financial situation was a lot less complicated and much less flexible. You would find it difficult to finance a semi-major purchase. Additionally, if you needed money quickly to pay for some sort of financial emergency, you wouldn’t easily and quickly be able to obtain it.
Today There's Much More Financial Flexibility
Today, those in first world countries live in a world filled with more financial options than was ever available. Today we have:
So, do you really need a rainy day fund when you have all of the above options to handle financial emergencies?
Yes - you still need an emergency fund in the 21st century. Although we live in the world with much greater financial flexibility and with a bigger societal safety net, you should still have a 3-month to 6-month emergency fund in place to protect you. It is the case that if you didn't have a rainy day fund today, you would likely fare better in a financial emergency than you would 100 years ago, but that isn't relevant. An emergency fund will still protect your financial well-being by allowing you to weather financial emergencies:
Additionally, a rainy day fund will keep you calm - it will help you sleep better at night. Regardless of the financial innovations that now allow you to have much greater financial flexibility, an emergency fund is still a crucial part of your financial house.
8 Things to Do After Your Baby is Born - How to keep a healthy financial life when your family grows
Are you planning to have a baby? Did you already have a baby? Below are 8 essential things you must do after your baby is born - do them and set yourself up for financial success and tranquility.
1. Pick a Guardian in Case of Death
This isn't pleasant to think about, but you should think about it once so you don't have to think about it again and so things are properly in place. Many people don't do this, but you're a responsible adult and that means you sometimes have to think of unpleasant possibilities and plan for them.
You should plan on who will take care of your child or children should you and your spouse both pass away. Obviously, you will want to screen your potential choices according to criteria that are important to you. It's hard to give advice on this - you have to do what feels right for you. You will obviously want to speak to the person or family that you choose about your decision to make sure everything is ok.
2. Write/Update Your Will
You and your spouse should already have a will. If that's the case, it's time to update it. If you don't have a will, now is the time to create one.
In your will you'll want to include information about who you choose to look after your child or children in the tragic event that you and your spouse both pass away. You'll want to include other important things that belong in a will. We won't go into detail here on what to include in your will, but make sure to include what you want to happen to your assets in case of death and how things will proceed if your child or children are minors when you and your spouse pass away.
Wills are governed by state law generally (as opposed to national law) so you'll want to look into your state laws on this. There are resources online for easy and affordable will creation. For more complicated matters, it might be a good idea to speak to a licensed attorney in your state.
Note: A will might not be sufficient for your situation - a living trust or something more sophisticated might be required. If you believe this to be the case you might want to consult with an estate planning attorney.
3. Make Sure Health Insurance is in Place for the Baby
You will want to make sure or double check that proper health insurance is in place for your new baby. If you have a regular "W2" job, your child is likely covered by your health insurance - but you should obviously double check anyway. If you and your spouse don't have health insurance from work, check to make sure that your new baby is covered under your insurance policy and for how long. In situations where you don't have health insurance yourself, you will want to make sure that your baby is covered - either purchase health insurance immediately on your own or seek some sort of governmental assistance (eg. subsidies or government provided health insurance).
4. Put Proper Life Insurance in Place
For the vast majority of people, life insurance is an important part of financial planning, especially after the arrival of a new child. We won't go into the "whole life vs. term life" debate or discussion here (although that is an important discussion worth having), but it suffices to say that you should have proper life insurance in place so that your baby and your spouse are taken care of financially should you die.
If both you and your spouse earn an income, both of you should have life insurance in place. Even if your spouse doesn't earn an income, however, you should still very likely get life insurance for your spouse because if one of you dies, there will be upheaval in the family of a caretaker at home is no longer there - that caretaker will have to be replaced or the income earner will have to stop working and stay at home (at least for a period of time). Therefore, even stay at home wives and husbands should very likely have life insurance in place. In the tragic event of untimely death, the income earner will know that he or she can comfortably stay at home with the kids during a very difficult time without having to worry about earning an income. Don't neglect to understand how important this can be.
How much life insurance should you purchase? The typical advice is 10 times to 20 times your annual income. I would err on the side of caution and purchase more rather than less. This is a decision you should think about in light of your net worth, family situation, and lifestyle, etc. If you cannot comfortably make this decision on your own, consult with someone (such as a financial advisor) who has a responsibility to you as a fiduciary.
There might be situations where you don't need life insurance of any kind, however. If you have a lot of assets that can provide for your family in case of death, life insurance might not be required. I would recommend being conservative here: make sure you have enough assets for a 4% drawdown rate to fully replace the combined family income. For example, if the household income is $100,000, you will want to have at least $2.5 million in assets before you totally avoid life insurance - this will allow the beneficiaries to withdraw $100,000 a year (pre-tax) without touching the principal. A 4% drawdown rate would be considered on the conservative side by many, but we don't want to fool around with your family's and your children's well-being in the case of your untimely death (especially when term life insurance is generally not very expensive).
5. Set up a 529 Account for College Savings
Who knows what will happen in 18 years, but I would bet that colleges will still be around and that a college education will still be a useful thing both for a person's career and for their self-development. I do believe that online learning, self-learning, and other non-traditional forms of learning will grow in use and will compete with traditional expensive college educations, but I don't think colleges will be eliminated by any means within the next few decades.
You'll want to prepare for your child's college education as best as you can so that you can give your progeny the gift of a debt-free undergraduate degree, something that many former students (especially millennials) in the US wish they received.
A 529 college savings account is a tax-advantaged savings account that can only be used for educational purposes. Of course, if you think that your child is very unlikely to attend college (eg. mental or physical disabilities, lifestyle choices, fatal illness, etc.), you might want to skip this step and save money in a place that you can access for any expense even though that place might not be tax-advantaged.
6. Begin Saving for Other (non-college) Expenses
Beyond college, here are other potential expenses that your child might incur throughout his or her life:
I recommend keeping this account in your name until you are ready to bestow the gift. You don't want this money to harm your child - you only want it to benefit them. If your child becomes a cruel adult or a spoiled adult or a dug-abusing adult or an alcoholic adult or an uneducated and lazy adult, you might decide that it's better to hold on to this pile of money for a little bit longer (or for a lot longer). Make sure you retain this flexibility by only keeping it in your name (or your and your spouses name).
7. Consult With Your Accountant to See About a Tax Deduction
Now that there's another dependent in your household, you will likely save on taxes. Consult with your tax professional (or TurboTax) to see how your new baby will affect your tax situation and to get the best possible tax advantage from it.
8. Begin Thinking About Elementary School
You'll want to start thinking about elementary school for your child. This is especially important if this is your first child, as schooling decisions have likely not been made yet. You'll want to ask yourself whether you're satisfied with the schools in your current area or whether you would like to move in the future in order to get access to better schools. You'll also want to think about whether you want to send your child to a private school or some sort of religious or cultural after school program. These are important lifestyle and educational decisions that also have financial complications attached to them - plan ahead so that you can do what's best for your child without sacrificing all of your other financial goals.
If you can do all of the above quickly, confidently, and well, you'll set up a very strong foundation for your family's financial future. When your little baby (or babies) grows up, they'll thank you for being such a mature and proactive parent or guardian.
What if you're adopting
The above does apply to adoptive parents as well. It was simply written from the perspective of a biological parent because that's what occurs in the vast majority of cases. If you're adopting a child you likely have a good financial base (most adoptive parents do because there are often financial requirements for adopting a child), but you might find it slightly more difficult to accomplish certain savings goals (specifically items 5 & 6) because your time frame is likely going to be shorter - the older your adopted child is the closer they are to college and the less time you have for the magic of compounding to work. Keep this important item in mind and plan accordingly.
Investing is one of the best ways to grow and preserve your wealth, but you shouldn't start investing unless you've done the 7 things below. Read the article below to find out how to create a proper foundation before you being investing.
1. Pay down your credit card debt before you start investing
Before you start investing, you must make sure to pay down your high-interest credit card debt. I'm not saying you have to be free from all debt here. For example, many people successfully invest with a mortgage and with student loans. There's a debate in the financial community regarding whether or not you should be totally free from all debt before investing. I am in the camp that believes that investing with some low-interest or asset-backed debt can actually be a reasonable financial plan. There's more to this analysis and we won't go into it in this piece, but it suffices to say that even if some debt is acceptable when beginning to invest, credit card debt is not.
Credit card debt is a terrible form of debt. It is debt for things you've already purchased or experienced and in most cases they can't be reliably sold off to pay off the debt. Additionally, most credit card debt is at a high interest rate (10% + on average). Credit card debt can be like a ball and chain on your leg as you attempt to run toward financial freedom and wealth - it won't allow you to go very far. You must remove the burden of high-interest credit card debt and vow to never take on such an insidious form of debt ever again before you being investing. Do not put any money in the stock market or any other market when you have an opportunity pay off your debt first. By paying off your credit tcard debt, you'll effectively be earning a return on your money equivalent to the credit card's interest rate.
2. Have an emergency fund in place before you start investing
Before you start investing, you must make sure you have a rainy day fund in place to protect you and your household from life's financial emergencies. An emergency fund will help you withstand life's storms and it will protect your soon-to-be wealth in the form of investments from liquidation should you need funds to take care of a financial emergency. Check out the links below to get one of the deepest looks at why you need an emergency fund and how you can build one up incredibly quickly.
3. Don't start investing until you have a proper structure of insurance in place for you and your family
Before you start investing, make sure you have the proper insurances in place to protect you and your family. Here is a non-exhaustive list of possible insurance policies:
You obviously don't have to purchase every policy above - purchase what you need in your current situation and adjust things as you move along in life and in your financial plan. If you're not capable of deciding which policies to purchase on your own, it is advisable to speak to someone who knows about these things. This could be a knowledge friend or a family member, but it might be wiser to speak to someone who would have a fiduciary responsibility such as a financial advisor or consultant.
4. Decide on whether to invest alone or to use some sort of financial fdvisor
After you've paid off your credit card debt, built up your emergency fund, and put proper insurance policies in place for your current financial and lifestyle situation, you must ask yourself the following question: Can I go it alone or do I need assistance?
Many people successfully invest alone, but many also fail miserably when investing on their own because they can't do one or both of the following importing things:
What this means is that if you want to be a successful investor you've got to have some basic knowledge about why things go up and down in price (both short term and long term). Additionally, you have to have the discipline and emotional control to not panic and not get greedy, two things which are poisonous to your financial future. If you don't think you are capable of both of the above, consider using the help of a financial advisor or a financial consultant (at least for a short period of time).
It's not easy to find a good financial advisor. There are a lot of salespeople or charlatans in finance, but there are also a lot of excellent, inteligent, and kind-heated people. The dififcult part is differentiaing between the two. Don't hesitate to interview your financial advisor and ask questions - it's your money they will help yu manage after all.
5. Take a Risk Tolerance Quiz before you start investing
Take any online quiz with a grain of salt, but I strongly suggest that you take a reliable online risk tolerance quiz to help you better understand your risk tolerance and your emotional capability to handle volatility within your portfolio. There are two well-know solid quizzes like this: one is from Rutgers University and the other is put out by Wells Fargo.
6. Think about what you're investing for
Before you start investing, think about what you are investing for. Are you investing to:
When you think about what you're investing for, you will get a picture of a very important concept called time horizon. Your investment time the horizon will help you determine the risks you can take in your portfolio - the longer the time horizon the riskier your portfolio can be because you will have more time to ride out the ups and down.
7. Give some money away, even if all you can give away is a tiny amount
Before you start investing, and once you have paid off your credit card debt, built up your rainy day fund, and put proper insurance policies in place, you should give some money away. You can give it to a non-profit organization like the Red Cross, to a person asking for money on the street, or to a friend or family member hat is in need. The fact that you're now ready and able to invest means that you're better off than most people on this big blue planet of ours. You should be thankful for this and that gratitude should compel you to do something nice for your fellow human beings, especially those who aren't as fortunate as you are. You don't have to give a lot, but it should be a meaningful amount of money for you. I promise that this action will warm your heart and it's likely that you'll keep on giving throughout your life.
P.S. Start investing with matching-style accounts like 401ks
P.S. Make sure to put your first investment dollars in accounts where you get a "free money" (eg. some sort of match). This is usually an employer-sponsored retirement account such as a 401k. With such a match you get immediate returns. For example, if you get a 100% match, it's like getting a 100% return on your money right away with no risk. You can't beat that.
You absolutely need an emergency fund because life is unpredictable and filled with many potential costs that might not seem apparent to you in the moment
Does anyone in the financial media or the financial press even address the question of why we need an emergency or rainy day fund? I feel that the idea of having an emergency fund is so deeply ingrained in the personal finance world that no one in personal finance discusses why you actually need an emergency fund. I don't think that's wise. If we are going to save up 3-months to 6-months in living expenses (a serious pile of cash), we better have a good reason for it. Otherwise, why bother with it? We could either spend that money on things we enjoy, give it away to someone in need, or invest it in the markets where the money has a chance of obtaining a return and growing. Why would I just have a pile of cash sitting around earning abysmally low rates or return if there isn't a solid foundation to it?
First, let's define a key term: Stochastic
Something is said to be stochastic in nature when it is randomly determined or when it's probability distribution cannot be precisely predicted.
Stochastic is sort of the same as random. So we can say, "this is a stochastic process" or "these events are stochastic."
Here are a few examples of stochastic processes or things that have stochastic components to them:
The term stochastic is heavily used in mathematics, but we don't need to give the term any more treatment than we have already. I didn't use the word "random" because I wanted to really bring home the fact that the physical and life sciences, mathematics, and even the social sciences recognize the fact that the world is random and unpredictable in many ways. For many things that have a material effect on our lives, it might be possible to understand the general distribution of things (eg. what will happen on average) but it is not possible to understand what will happen next.
The world is stochastic in nature
As stated above, the world is stochastic in many ways. The world is filled with randomness and random processes and occurrences. There's no way to tell exactly when your car will break down, when a major weather event will require a window replacement, or when your body will have some sort of medical emergency. There's not a way to predict when you'll get into a car accident, trip while walking off a curb, or when the economy will fall into a recession and you will lose your job. Hopefully, none of the above ever happens to any of us, but there's no guarantee. And so, we must be prepared as best as we can.
One way we can be prepared for possible emergencies is to be financially prepared. We can be physically prepared, mentally prepared, emotionally prepared, and spiritually prepared, but we must also strive to be financially prepared to weather life's inevitable blows to our peace and tranquility.
Now that we understand that the world is random, we can see that this randomness might cause financial emergencies - things we weren't anticipating that require the use of money.
How can we react to such financial emergencies? There are 4 main ways you can react to a financial emergency:
The 4 ways to handle an emergency, financial or otherwise
Sell your investments; liquidate a portion of your financial portfolio: One way to handle a financial emergency is to sell your investments (if you have them,). If you're invested in the stock market, for example, you can liquidate enough shares to take care of the financial emergency. That's easy, right? Wrong.
If your emergency occurs after at the end of a long bull run, then that selling your investments to pay for your financial emergency could possibly be a reasonable idea. But what if your financial emergency occurs during a recession? Isn't it more likely that a financial emergency such as losing your job will occur during a downtrend in the stock market. What if there is no recession or downtrend, but your particular portfolio is down? Selling your shares to cover the financial emergency will be very unpleasant and it will further compound the already bad situation. You'll basically be locking in the losses and losing an opportunity for a possible recovery. You want to have the opportunity to ride out the downtrend should you so desire.
The example with stocks can be extended to investments in commodities, real estate, bonds, and derivatives. You don't want to have to sell when things are down. You want the flexibility to be able to stay invested and ride things out.
Cash flow through an emergency: Not everyone has investments and even if they do, they might not have enough invested to cover a financial emergency. So, if you can't sell investments to pay for it, maybe you can just cash flow through the financial emergency - maybe you can just pay for things with the income you have coming in every month. But what if your emergency is such that your ability to earn an income is diminished or eliminated for a period of time? What if you just don't make enough to cash flow through your financial emergency?
It's pretty risky to rely on your ability to earn your way through an emergency. Say you need a car repair that costs $500? You can cash flow through that relatively easily. But what if you have a medical emergency with a high deductible? That's more difficult. What if you have a major repair that needs to be done to your house? That's pretty difficult too.
Use debt to handle an emergency: f you have no investments to sell and you can't cash flow through the financial emergency, you'll probably have to go into debt to take care of things. That's obviously a bad situation. You're again compounding the bad stuff by going into debt.
But what if you can't go into debt? What if you don't have enough on your credit cards? What if you can't get a loan? Now you're totally stuck aren't you? No money and no ability to obtain funds elsewhere will mean you'll have to resort to asking your friends and family for assistance or for loans, a pretty unattractive proposition.
So, the above three options for dealing with a rainy day are obviously not optimal. There's a fourth option: have a rainy day fund.
Use your emergency fund: It should be obvious by now that an emergency fund is the optimal way to deal with life's financial emergencies. It's better than having to sell your investments to deal with a financial emergency because the emergency fund acts as an insurance policy, protecting you from having to liquidate your investments. If you don't have investments yet (keep reading Pennies and Pounds and you will soon), then the insurance policy allows you to move forward after a financial emergency without going into debt and without stress and anxiety. It allows you to take life's financial blows and get right back up again instead of staying knocked down.
So, we see that random stuff happens and that the best way to protect yourself and your household is to have an emergency fund. An emergency fund will benefit you whether you have lots of investments or no investments at all.
But there's one other reason to have an emergency fund in place...
Not all expenses are monthly
Most people think in terms of monthly income and monthly expenses. The more sophisticated or the more financially nerdy among us (myself included) might think about yearly expenses. But there are many expenses in life that are not monthly. Expenses can happen:
Some expenses come every year
Some expenses come every few years
Some expenses com only once every 5-10 years
A handful of expense are generally considered once-in-a-lifetime
I hesitated to discuss these expenses in this piece because they aren't proper emergencies in my opinion. Emergencies are surprises that are unforeseen, but the above expenses are not unforeseen - I just wrote about them and named off a bunch of possible expenses that are not monthly. We should plan for them because we can obviously anticipate them, unlike an actual emergency such as a car accident or an injury. So, why did I include them?
I included these expenses because of my awareness of human nature. Humans aren't great at anticipating the future and planning ahead. I know that these expenses aren't proper financial emergencies and I know that we should plan for them, but I also know that we're humans and the reality is that most people will neglect to plan for them. That's just human nature. Studies show that most people fail to even have a basic emergency fund, let alone save for far-off expenses. People have a tendency to focus on the here and now and to not pay attention to what is coming down the road. Therefore, I do believe that an emergency fund can act as a certain protection against our human nature, against our seeming inability to see too far ahead. It acts as a cushion not just against life, but also as a cushion against our own minds and our own selves. If, in a moment of rationality, we can understand this about ourselves (our poor ability to plan for such expenses) we might be able to set up a very strong foundation for our financial security.
Having a rainy day fund in place just makes sense
An emergency fund is important. It just makes good sense. An emergency fund is one of the simplest and most prudent financial moves you can make. Since antiquity, the wise have understood the importance of storing something away for a rainy day.
So, make sure you have a proper emergency fund in place and do the hard work needed to get one set up quickly. You already knew that you need a rainy day fund I'm sure, but now you know why with what is probably a much deep and much more sophisticated understanding than most people have.
There is treasure to be desired and oil in the dwelling of the wise; but a foolish man spendeth it up. (Proverbs 21-20)
P.S. If we know emergencies will come and if we understand the world is stochastic in nature, do true emergencies really exist?
I couldn't help getting a bit deeper and philosophical here. Let's think about this. We figured out that life and the world are random and that random and unpredictable (stochastic) stuff will happen. So, are there really any real financial emergencies? By definition, an emergency is something unpredictable. But, although we can't exactly predict when something bad will happen because of the stochastic nature of things, we can definitely be sure that the world is random and that something might happen at any time. So, we should never be really surprised when we have a financial emergency became we should already know that it's a possibility. Regardless, we still need to have a rainy day fund set aside. So maybe there aren't really emergencies after all - maybe there are just those things that we know will happen and those things that could happen but shouldn't surprise us if they do. What do you think about this? I'm interested in your opinion on this - comment below or email
Once you've accumulated your 3-month to 6-month emergency fund you will need a place to put it. Where should you keep your emergency fund? There are actually 3 places you should keep your emergency fund for optimal protection and efficiency. Read the article below to find out what those places are so you can rest easy knowing you have a solid financial emergency cushion in place.
Rainy Day Fund = Protection Against Life's Financial Storms
Your emergency fund is protection against life's financial uncertainties. The typical rule of thumb says that you should have 3-months to 6-months of living expenses in your emergency fund. That rule of thumb balances the cost of not having money in the markets with the benefit of a rainy day fund provides - namely, insurance against life's financial storms. Of course, some situations vary and might call for a larger emergency fund, but I would caution against going below 3-months of living expenses.
But where do I keep my rainy day fund?
Having 3-months to 6-months in living expenses leads to a further question: where should you keep your rainy day fund? This is an important question because your emergency fund is a significant amount of money and requires prudent care in order to protect it while still having the liquidity a proper emergency fund requires.
Don't Just Keep Your Emergency Fund in One Place
My advice is to keep your emergency fund in more than one place. You want your overall rainy day fund split up into 3 categories:
By keeping it in three places, you are properly protecting yourself against emergencies. Not every emergency happens during bank operating hours and you might not have access to an ATM. You should have a small portion of cash in your pocket and a small portion of cash at home with the rest in a liquid account at a bank (or more than one bank - one a brick and mortar bank and one an online bank for the higher interest rate).
1. Cash in your wallet or purse
Emergencies can happen anywhere. You might have a situation where cold hard cash is required (although that is becoming less and less of a worry as the world digitizes and even small businesses can easily accept credit cards). For those rare or hopefully nonexistent occurrences, having a small percentage of your rainy day fund in your wallet in the form of cold hard hundred dollar bills and twenty dollar bills might prove useful.
You obviously don't want to have a significant amount in your wallet or purse for the obvious reason that it could be stolen or lost. You should be wise and prudent in how you keep this money. Put it in a more secret place in your wallet or purse if such a place exists.
I don't have a hard and fast percentage rule for how much you should keep in your wallet or purse, but it should probably be less than 5% of your total rainy day fund.
2. Cash at home
You want to also have some cash at home. I don't have a hard and fast rule for what percentage of your emergency fund you should keep at home, but it should probably be less than 25% of your total emergency fund.
Keeping cash at home is a good idea for various reasons. First, you might need to get your hands on cash right away without having to make a trip to the bank or an ATM. Additionally, there might be a natural, societal, or political disaster that prevents you from leaving the vicinity of your residence for various reasons (eg. safety, inability to get on roadways, injury, etc.). In this situation, cash at home might prove very useful should there be opportunities to purchase basic necessities within your neighborhood or to transact in other beneficial ways.
3. Money in the bank (or banks)
The majority of your emergency or rainy day fund should obviously be kept in a bank. There the money is physically safe and FDIC insured (assuming you are within FDIC Insurance limits). We now have a few options for exactly how to keep the money in a bank.
Brick and Mortar + Online
You should do both. Keep a portion in your brick and mortar bank for quicker access and keep the rest in an online bank. An online bank has two benefits:
First, it allows you to separate from the money a bit more but still gives you quick access when needed. This separation prevents you from using your rainy day fund for unnecessary things or non-emergencies. The separation gives you a bit more time to think about whether using the money is actually required.
Second, you will most likely get a higher interest rate at an online bank. The purpose of your rainy day fund isn't to obtain a return on your capital (it's to protect your wealth and your other investments from liquidation in a financial emergency), but it doesn't feel pleasant when you're earning abysmally low interest rates. Keeping a portion of your emergency fund in an online bank might remedy this.
Savings > Checking
Keeping the money in a savings account that is linked to your checking account is preferred. The savings account will earn a higher interest rate and it will allow some sort of separation from your daily transactional account. A dedicated savings account (both at your brick and mortar bank and your online bank) is a good idea because you'll know exactly how much money is allocated for your rainy day fund and you won't get it mixed up with your transactional accounts or with other savings accounts (eg. other liquid cash, down payment, imminent tuition payments, etc.).
What if I have more than the FDIC Insurance limits?
If you are in the pleasant situation of having more money in your saving account than is covered by FDIC Insurance limits (currently $250,000 in each bank for individual accounts - visit the FDIC website for the full information on this), you'll want to split up your money and put it into different banks so that you are below the limit at each bank. I would recommend being careful and doing your research with this in order to make sure all of your rainy day fund is covered by FDIC Insurance.
If you have so much money that it is not feasible to put your entire rainy day fund in various banks (eg. an emergency fund in the millions or tens of millions of US dollars), then you might have to purchase less liquid instruments such as US Treasuries in order to keep the remainder of your rainy day fund, but won't go down that path here. However, it is unlikely that your rainy day fund will be that large because your rainy day fund should cover 3-months to 6-months of living expenses, not income. Even if you have a very high income, it is unlikely that 6-months of living expenses will be more than a couple of million dollars.
Further Reading: How big should your emergency fund be?
Further Reading: 3 Ways to Build Up Your Emergency Fund Super Fast
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You need an emergency or rainy day fund to protect you against all of life's unpredictabilities. But saving up 3-months to 6-months of living expenses can be a difficult and tedious task, one that can be so discouraging that you give up altogether. To build up your rainy day fund correctly, you need to do it quickly. Read below for 3 time-tested ways of building up your rainy day fund quickly so you can move on to bigger and better things in your wealth-building.
3-month to 6-months of living expenses saved? - That's so much!
The typical 3-month to 6-month emergency fund is a decent chunk of change and it's not that easy to accumulate that much cash very quickly. You usually want to err on the side of caution and go for a bigger emergency fund (eg. 6-months of living expenses instead), but many people struggle with accumulating half a year of living expenses. Half a year of living expenses isn't the same as half of your income (it should be significantly less), but it's still a respectable amount and that amount can be difficult to accumulate when you have all of the other expenses gnawing at you (expenses like credit card payments, student loan payments, rent/mortgage, car payments, gas, and the basic necessities of lie). Life is expensive and it's understandable that so many people don't even manage to accumulate a reasonable rainy day fund.
It's hard...but you must do it
The fact that life is hard and that we have many expenses, however, is no excuse to not have a proper emergency fund in place. Life is random and unpredictable. You are doing yourself and your household a deep disservice by not having a proper emergency fund in place to shield you against the storms that will inevitably come your way.
Slow and Steady Doesn't Always Win the Race
Slow and steady saving might be good for long-term wealth building, but not for your emergency fund. For your emergency fund, you want to buckle down and use grit, discipline, and short-term self-denial to quickly build up your stash of cash so that you can move on to bigger and better things, secure in the knowledge that you have your emergency fund in place as insurance against all life's unpredictability. By quickly building up your emergency fund, you can channel your energy into a single purpose and you can quickly accomplish what will otherwise be a dreary and frustrating task (accumulating many months of living expenses by saving only a small percentage of your income).
Use the Following Strategies to Quickly Build Up Your Emergency Fund
1. Get a Temporary Second Job
Get a second job doing something on the side. Dave Ramsey's pizza delivery job has been the classic recommendation, but today many more options are available. You can drive for Uber or Lyft if your car meets the requirements. You can tutor if you have skills that are in demand. If you have the skills, it might be possible to do some freelance consulting. Even a weekend job as a cashier is a decent short-term gig if it helps you supercharge your emergency fund savings.
2. Sell Stuff
Selling stuff is a tried and true way of getting your hands on some cash quickly. Some people have more to sell than others, but if you have things that you aren't using anymore, try to put them on eBay or Craigslist.
3. Cut Down Big Time
Most households have some fluff-room (that's not a technical term). What I mean is that most households aren't just buying the basic necessities, but are instead buying extras luxuries. It might be possible to buckle down and cut out a lot of unnecessary (although pleasant) expenses for a short while. It obviously won't feel great while you're doing it, but it's not for long and once you have your emergency fund in place you can go back to a normal lifestyle secure in the knowledge that you have a cushion of cash in place against all of life's crazy unpredictabilities.
Pull Off the Bandage Quickly
Pull off the bandage of having to save up such a significant amount of money quickly. You can take your sweet time, but taking so much time will discourage you and taking a lot of time means you're not investing in the markets. Your emergency fund is not your wealth and its only function in your wealth-building is as insurance - insurance against the unpredictable that allows you to not have to touch your invested money. That's a key point to keep in mind. Don't waste time but instead build up your rainy day fund quickly using the tactics above. It may not be pleasant, but it will benefit both your pocket and your mind if done correctly.
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Income vs. Monthly Expenses: Use your required monthly expenses to properly size your emergency fund, not your pre-tax or take-home income
Your monthly living expenses are a small portion of your monthly income and will most likely be less than your current monthly expenses due to your ability to cut down on extras and luxuries. In many cases, you can use your required monthly expenses, instead of your income, to size your emergency fund appropriately and avoid keeping excess cash in non-earning/growth parts of your financial portfolio
The common financial rule of thumb says that you should have 3 to 6 months of living expenses in your emergency fund. But what does "living expenses" actually mean? To calculate your monthly living expenses, you need to combine the amount needed to maintain your household's physical and mental-well being along with your other monthly required payments. Surprisingly, it is possible for your monthly living expenses to be quite a bit less than your normal monthly spending. Read the full article below to find out your monthly living expenses and be surprised at how reasonable they can be relative to your income.
What can be considered living expenses for the purposes of emergency fund sizing?
The typical rule of thumb is to have 3 to 6 months of living expenses stored. Although this might not be right for everyone, it is generally a good rule of thumb because it balances the costs of having a significant portion of your wealth in cash (and possibly earning so little that inflation is eating away at it) with the benefits of having a cushion of liquid funds available should a financial storm strike. Inquisitive minds will follow with the following question: What do you mean by "living expenses?" This is an excellent question because the rule of thumb states that we need to look at living expenses as opposed to income.
Living Expenses vs. Income
Living expenses are not income, but instead mean the total amount of money needed to provide for the needs (as opposed to wants) of you and your household, maintain financial security, and keep you out of financial default. In a financially healthy situation, living expenses should be substantially less than your pre-tax income and less than your post-tax income by a significant amount.
Note: If you find yourself in the unsustainable situation where your monthly living expenses exceed your monthly income, you are headed for a financial catastrophe (unless you're expecting some sort of windfall) and you should immediately attempt to remedy the situation.
How to properly calculate your monthly living expenses so that your rainy day fund can be sized accurately - not too big, and not too small
To get at your monthly living expenses number, we will first focus on the expenses required to maintain immediate life, health, physical, and mental well-being of your household:
But living expenses aren't enough - you've got to think about required monthly payments (eg. student loans, credit cards, etc.) when determining the appropriate size for your emergency fund
After we have taken care of the basic necessities, we will need to tabulate your required monthly payments in order to properly calculate your monthly living expenses. You want to stay out of financial default and maintain any sort of insurance you have in place even in a financial emergency, so it is important to account for the following:
Remember that this is a very general guide meant to be used by a variety of people. Your situation is unique and it is possible that your monthly expenses may be different by a little or a lot from what we discuss here. Things such as the number of dependents, unique family situations, unique jobs and businesses, unique medical or mental health needs, or unique lifestyles might cause your situation to be different from the typical scenarios discussed here.
If you've been using monthly income to determine the size of your emergency fund, it might be a bit too big
If you're a true financial nerd you can put numbers to each of the above items and calculate the current projected monthly living expenses for your household (it's only going to be a projection because things are random in this world and things can change at any moment). If you're not yet a hardcore financial nerd, it might be enough to just glance over the items and roughly estimate the amount needed in your mind (provided you understand that this will be a less accurate estimation of your monthly living expenses). Either way, you will likely come to the conclusion that your true monthly living expenses as needed to calculate the size of your emergency fund are less than what you currently spend on a monthly basis. This is generally true fro the following two reasons:
Although your monthly living expenses don't have to be the size of your actual monthly expenses, it is wise to remember that a conservative approach will lead to a more robust emergency fund and a more resilient financial situation for you. Err on the side of caution and don't be overly aggressive in estimating how much you can cut down during a financial emergency.
I know it's not fun reading the above - no one wants to cut out their premium bottled waters, their dinners out, movies, app and music purchases, premiums soaps and shampoos, or anything else they enjoy doing. If you're in a financial emergency, however, it is wise to buckle down for a bit until you get back on your feet. Discipline and short-term self-denial can be excellent tools for quickly recovering form a financial emergency minimally scathed. The knowledge that you can buckle down and survive with a diminished lifestyle for a short period of time is useful in figuring out how much money you'll need in your emergency fund.
In conclusion, you don't need to use your monthly income when calculating your emergency fund - your monthly living expenses are likely to be significantly less than your income. Additionally, you can cut out extras and luxurious and only focus on the necessities described above when calculating your monthly living expenses. This will allow you to get a better and more accurate picture of how much you need have in your emergency fund and you'll see that you can fill up your emergency fund much more quickly because of this. However, remember to not be overly optimistic about how much you can really live on - be realistic with a conservative outlook and you should be fine.
This is a topic that’s been covered by every financial blog, podcast, book, or show, but we’ve got to cover it here as part of the basics because a proper emergency fund is a basic necessity to financial well-being and financial health and I refuse to give it short shrift just because it’s a readily-covered topic
The traditional advice: A 3-month to 6-month emergency fund
The traditional advice has been to have a 3-month to 6-month emergency/rainy day fund. That 3-months to 6-months doesn’t mean you have to have enough in your emergency fund to replace your income, it only means you need to have enough to cover only your expenses for 3 to 6 months. For example, if you make a household income $80,000 a year, 6 months of income would be $40,000. However, if you’re smart with your money and live below your means, your monthly expenses are likely less than your monthly income. It might be the case that $20,000 would be sufficient to cover 6 months of living expenses.
But, why is 3 to 6 months in an emergency fund enough?
Why 3 to 6 months, however? Where did that number come from? If more is better, why not go for a full year of expenses? Why not two years? That’s tough to answer and there might be possible reasons for going beyond 6 months. For some conservative people or for those who believe there are rainy days ahead, a full year of living expenses might be reasonable. However, the larger your emergency fun, the more money that is sitting outside of the markets and earning very little interest. There is an inherent trade-off between the security that comes with an emergency fund and the growth that can potentially occur from having funds invested in the markets (be they equities markets, bond markets, real estate, or other investments) over the long-term. Be mindful of that trade-off when you are choosing the size of your emergency fund.
An important principle in creating your emergency or rainy day fund is conservatism. We want to make sure that we err on the side of caution: it’s better to have too much than too little. Additionally, having a conservative approach will make us keep our emergency or rainy day fund in a very safe place, namely a simple saving or money market account. An emergency fund isn’t an investment, it’s insurance for all of your other investments, protecting them from potential liquidation should an emergency occur during some sort of economic downturn.
Online savings accounts offer the benefits of higher interest and delayed access - they may prove to be key tools for a successful financial life
Online savings accounts have been around for about a decade and provide a solid alternative to traditional savings accounts. You should have a 3 to 6 month emergency fund at minimum and you need to keep that emergency fund liquid and readily accessible. Traditionally, such an emergency fund would be placed in a bank savings account. Today, however, excellent alternatives exist: an online savings accounts. There are 2 primary benefits to having and using an online savings account for your emergency fund or for whatever else you're saving up for.
Online savings accounts generally pay a higher rate of interest, compared to traditional brick and mortar savings accounts
As of this writing, interest rates are at historic lows. The Fed might raise rates soon, but it will likely be years before rates reach historically normal levels. Big banks today offer rates that are almost insulting. Some banks offer rates as low as 0.01% in the United States and in Europe negative interest rates exist in places.
Although the purpose of your emergency fund or your liquid savings (eg. down payment savings or imminent college payments) isn't to make a large return, you would likely prefer something better if it was possible with the same amount of risk. Online savings accounts don't have the expenses traditional bank accounts have because no branch network is needed. This can be seen in the graphic above and should make complete sense. This savings is passed on to the saver in most cases as a way of attracting people to use an online savings account instead of a traditional brick and mortar bank.
If rates were the same regardless, most would prefer a brick and mortar bank due to the added ability to walk in if needed. Even if you do most of your banking online, this would add some sort of convenience and given equal interest rates, you would likely choose the brick and mortar option. The rates aren't equal, however, because online banks offer much higher rates than traditional brick and mortar banks.
Online savings accounts delay access to your money, helping you determine if it's really a need or a want
We've stated that an emergency fund should be easily accessible and that liquid savings that will be used soon should also be very easily accessible and not invested in the various markets (eg. equities, bond, real estate, etc.). Keeping this in mind, online savings accounts create a slight but beneficial barrier between you and your money by requiring (usually) a transfer into your traditional checking account at a brick and mortar branch before a large purchase or withdrawal can be made. This is a very slight barrier that doesn’t stand in the way of allowing quick accessibility to your liquid funds.
If there is an emergency, a two-day delay will likely cause any problems because you will likely have some money in your checking account to withdraw, you will have credit cards to use if needed, or two days will be enough time to get your hands on your funds. Most financial emergencies are not of the nature that require absolute immediate obtainment of funds (although some are – so you should probably keep some cash in your checking account and some cash in your wallet and at home for those time sensitive emergencies).
Although I wouldn’t keep all of my liquid cash in an online savings account, I would keep a majority of it there. Always be wise and prudent with your money and make sure the online savings account is with a reputable firm and that it is FDIC insured. Additionally, shop around for rates and online experience. It’s the 21st century and your online bank should have a high quality website and mobile app experience.
Having a stash of cash is critical for a peaceful life. Cash is like the grease for life. Grease helps a machine operate smoothly. Cash helps your life operate smoothly.
Need to make a move? Need to make a quick trip? Want to seize a new opportunity? Unexpected expense? Having a nice pile of cash will allow you to operate smoothly and more effectively, even if it's not the only thing that's important for effectiveness.
That's why I think you should have more than just the requisite 3 to 6 month emergency fund. You obviously shouldn't forgo real investment opportunities that will grow your wealth by hoarding cash, but you should make sure you keep some powder dry for those unexpected events, both good and bad.
Cash isn't the only thing that allows for greater financial flexibility, however. Keeping a proper emergency fund -- most likely with the majority in a savings account instead of in cash -- will also protect you from financial suffering during difficult times.
And now, given the rise of cyrptocurrencies and crypto assets to quasi-mainstream financial assets, we're dedicated to providing quality, relevant, and interesting material on cryptocurrencies and cryptoassets. Articles on Bitcoin, Ethereum, Ripple, Cardano, and many more cryptocurrencies and cryptoassets can be found on Pennies and Pounds - all that in addition to a plethora of information on what cryptoassets are, how the entire crypto industry came to be, blockchain/immutable ledger technology, mining, proof of work, proof of stake, and how to prudently invest in crypto if you are so inclined (based on your risk tolerance and ability to withstand the volatility that will come with a crypto portfolio).