Not Your Average Emergency Fund

Here is an article I wrote recently for the CFP Board...

If you are a member of the mass affluent, then this article is for you. Basically, if you have over $100,000 of investments and a household income of $75,000 or more, you are part of the mass affluent.

For context, here's a breakdown of the United States' Net Worth:

• $0 - $121,000: Bottom 50%
• $122,000 - $1.0 million: 51 - 89%
• $1.1 million - $11 million: 90 - 99%
• $11+ (i.e. Elon Musk): 1%

In 2019, the median household income was $69,560.

• Highest State: Washington, D.C.
• Lowest State: West Virginia

                                     Source: https://fred.stlouisfed.org/

As members of this elite group, I think you are like Hal in this Far Side Comic.

"Bummer of a birthmark, Hal," says one deer to another, who has a target on his chest.

To quote Wikipedia:

"Mass Affluent consumers are an important target market for sellers of 

luxury goods."

So what exactly is an "emergency fund"?

Simply put, it's money that's been earned, but not spent...Yet.

The amounts needed for unplanned expenses can vary dramatically from person to person, but generally they include things like:

• medical/vet bills
• job loss
• vehicle & home repairs

You know - stuff you didn't otherwise plan for.

In George Leonard's book "Mastery", published in 1992 (a book that's neither hot off the presses, nor specifically written for finance), he says:

"Every time we spend money we make a statement about what we value. There's no clearer or more direct indication." 

If having less money stress in your life is one of your values, then see how Leonard's work might contribute to your success.

The mastery of your finances is more of a process than a destination...Or a "practice", as Leonard would say. 

Here are Leonard's 5 Keys to Mastery applied to one's personal finances: 

1. Instruction. Certified Financial Planner professionals are trained to help their clients create emergency reserves that are uniquely suited to the individual.

2. Practice. Refer to Leonard's quote on spending and values every time you choose to spend. The impact of those expenses is either positive, negative, or neutral on your emergency reserves. Once you have reached the target savings amount, your practice will help keep it there and adapt to changing circumstances.

3. Surrender. Trust the teacher, trust the process, trust yourself. Your "team" will support & help defend you from the constant onslaught of marketing and algorithms.

4. Intentionality. What do you really want from an emergency reserve account? I personally refer to mine as a Rolaid Account. The same mental visualization techniques by famous athletes can work here, too: Plan your next shopping trip (online or in-person) in your mind. Does it match your practice values?

5. The Edge. An emergency reserve account is a foundational step to help improve your chances of success on this never-ending path. The skills you develop and the life lessons learned along the way will be just as important as the emergency reserve account itself. 

A Few Thoughts...

• Low interest rates can tempt you to take more risk than desired. This account is NOT a place to make money, but instead is intended to save you money (and stress) if/when it is needed. Think bank, credit union, money market accounts.
• Money issues are a leading cause of divorce. A life partner can be the best support team if both individuals have shared values and utilize a loving accountability system. Take the time to get into alignment.
• Tracking spending can be one of the best ways to hold oneself accountable. Apps can help too, but some of them track the user's activity in ways that can work against you.
• Share your success with friends/family. Train your children early in what Dick Wagner, CFP®, a long-time practitioner and friend who advocated for a more holistic approach to financial planning, calls "21st century survival skills."
• Emergency reserves don't solely consist of money. They can also include things like medical supplies, food, and water.

Being a member of the Mass Affluent means:

• You aren't in the top 1% (lots of money)
• You aren't in the bottom 50% (no or little money)

Meaning you have money to lose, but not enough to fight back with.

A Stone Center Socio-Economic Inequality Report says the middle class is not "shrinking" out, it is getting squeezed.

Become a master and improve your chances of success!

** All written content is for information purposes only. Material presented is believed to be from reliable sources. No representations are made by our firm as to another parties’ informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. **