- Wealth Builders Weekly
- Posts
- Start With Your Core
Thank You!
Thank you again for subscribing to the Wealth Builders Weekly newsletter!
Some ground rules as to how this newsletter will be delivered:
Content is concise. I respect your time and won’t waste it.
Tactics can be acted upon weekly if you choose. Some tactics (especially growing income) will require months or years to develop but we can start now.
Content will be tactical. Not just what but how to implement for yourself.
Focus is on items you control vs. the markets, government policy, the macroeconomy, etc.
Will the order of weekly tactics shared always be optimal for everyone? That’s not possible to know and if that is desired, individual advice should be sought. You can evaluate which tactics make sense for you. The schedule will usually go per the below outline but some curveballs (like Week 1) are fun too:
Grow Income
Reduce Expenses
Save More
Wildcard content
Week 1 Tactic
Save More: Start With Your Core
You build a home on a foundation.
You develop your abs and lower back for strength as an athlete.
You plant your garden in soil so strong roots can grow.
Your whole financial situation needs a strong base.
Your emergency savings/cash reserve is where it starts.
Cash as emergency savings only is thinking small. It’s also how you build from basic security to wealth building.
From your cash reserve, you want to build your investment opportunity set. It can be seed money for a business idea, stock market investing, a retirement income real estate investment, or how you get out of a job you hate to name a few.
A Launching Pad
Many of us are such dreamers however that we skip over this important step. I mention this because in 20 years, working with regular folks and high net worth clients the same, this part gets overlooked often. Without that base, you limit your long term potential.
One data point that makes this clear is Bankrate’s annual survey. Long story short:
48% of Americans have an emergency fund worth 3 months of living expenses
22% have no emergency savings at all
So how much cash on hand do you need? The Certified Financial Planning Board of Standards recommends 3-6 months of living expenses.
“Keeping some money in a safe and liquid account that is easily accessible can help cover unexpected expenses—such as home or car repairs, insurance deductibles, or your bills if you lose your job.
It’s a good idea to keep at least three to six months’ worth of your essential expenses in an emergency fund.”
It is limiting like any rule of thumb.
Every family’s situation varies significantly.
What does this look like?
3 months or less may be fine if your income sources and situation is very stable and reliable.
Sally is a single mom and works as a contract administrator for a healthcare company where she’s been employed for 20 years. She earns a similar salary plus bonus compensation each year, about $75,000. Her family needs about $4,000 after tax monthly to keep things going.
She has saved $20,000 and is not concerned with getting to 6 months of expenses saved. Sally’s maintained this level of cash savings for the last 10 years without interruption.
She has since diverted her monthly savings to investing instead once she reached her own personal comfort level.
3-6 months may not be near enough if you earn income on a less predictable schedule.
Steve is the sole income earner at home. He’s a real estate agent, married with 4 children and earns commission through the sale of 1-5 very large commercial properties each year. He earns a highly irregular income in commission sales. His family needs about $12,000 a month after-tax to maintain their lifestyle.
They currently have $50,000 set aside and the last 3 years, he’s averaged $250,000 in gross income. He saves $1,000 a month for the past 8 years and has seen some rough years in his career. His wife would like for them to have a year’s worth set aside instead of their current 4+ months. It will take several years to get there without pulling some levers of income, expenses and saving rate. Even doubling his savings rate will take several years.
What Can You Do This Week?
The below table is designed to be an actionable takeaway for this week.
If your monthly household expenses are close to the column at left, the 3 month guideline will give you an idea of what you “should” have on hand to start with.
Subtract what you have saved already currently in cash equivalents at the bank, money market, CD, etc.
The right hand columns layout what you need to save over the course of this year or next to reach the 3 month target. Simply double the numbers if your goal is a 6 month cash reserve.
You can absolutely take longer than a year to reach your cash reserve savings goal but the below is a place to start.
Options Where To Put It
Flourish is an interesting offering if you work with an advisor and have a large cash balance you need access too while seeking higher FDIC limits.
VMRXX is a mostly liquid, high quality money market mutual fund that provides a stable $1 per share value with a competitive yield. Interest is fully taxable so municipal money market funds can be a better option for high income earners.
None of the above mentioned securities and vendors pay me any referral compensation, affiliate revenue, etc. just sharing a helpful starting point.
Thank you for your trust reading this far.
If you’re not a subscriber already, hit that button below to receive new tactics each week you can implement to grow income, reduce expenses, and save more now.
To work with me in a comprehensive planning or coaching engagement, checkout my website and schedule a call.
Reply