---
title: 'The 1-3-6 Method For Building & Managing Your Emergency Fund'
source: 'https://youtube.com/watch?v=rGdII_Z0hnw'
video_id: 'rGdII_Z0hnw'
date: 2026-06-30
duration_sec: 2332
---

# The 1-3-6 Method For Building & Managing Your Emergency Fund

> Source: [The 1-3-6 Method For Building & Managing Your Emergency Fund](https://youtube.com/watch?v=rGdII_Z0hnw)

## Summary



## Transcript

a lot of times the reason why you're
having more urgencies than most is
because we need to figure out a way to
solve another side of the problem and
it's the folks who actually have cash on
hand are the ones that are always able
to build wealth because they can protect
their finances you should not be doing
anything else until you can get to this
one Monon expense number you may be
starting way farther back than everybody
else privilege is real but I know you
can do this and I know you can make a
change in your life and that is my goal
for every single person listening to
this show your finances don't have to be
perfectly optimized for growth you want
them to be optimized to reduce your
stress and anxiety that's what you want
them optimized for now today I'm going
to be diving into a brand new framework
for the emergency fund and I am super
excited to to dive into this today
because I have been spending a lot of
time over the course of the last year
beefing up my emergency fund we have a
lot of Life Changes going into our lives
at the Jin Cola household and so I have
been spending a lot more time getting
more comfortable with how much cash I
want to have on hand and so because I've
been doing this I've been working really
hard on developing the perfect framework
to a build your emergency fund but this
is also the framework to help you manage
and maintain your emergency fund because
as we're going to talk about in this
episode your emergency fund is something
that needs to be used and I think a lot
of people hoard cash and their emergency
fund without utilizing it so we'll talk
through how you can rebuild it if you
have to use it we're going to go into
how to actually build one out the proper
way and we're going to say how much cash
you have to have on hand based on your
life experiences now we've talked a ton
about emergency funds in the past this
is going to be the main framework that
we go by so if you ever hear me talking
in the future about the 136 method this
is going to be the method that we've
developed and the one that we want to
make sure that you are following uh
going forward if you are interested in
you know Building Wealth generational
wealth and and mastering your money and
you follow all the other stuff that we
do so this is something I am really
really excited about and one thing I
alluded to is we will talk about by
financial situation and so we're going
to talk through if you are a 9 to-5
worker we're going to talk through if
you're an entrepreneur and you own your
own business how much you should have on
hand if you're a retiree and so it's
really important to make sure that we
look at these life stages in our lives
to make sure we have enough financial
protection going forward first I'm going
to dive into why we need an emergency
fund so if you know what an emergency
fund is and you know why you need to
have one you could skip ahead if you
need to but I'm first going to dive into
why we need one number one is if you
don't know what emergency fund is it's a
bunch of that you set aside on hand when
emergencies happen now it's not if an
emergency is going to happen but when
will an emergency happen emergencies
happen in life every single day your car
is going to break down you may lose a
job you may have an emergency medical
bill a pet may get sick your kids may
get sick there are so many different
life scenarios on when you're going to
need cash on hand and it's the folks who
actually have cash on hand are the ones
that are always able to build wealth
because they can protect their finances
this is why it is the number one thing
that we want you to be doing with your
money first is to start to build up the
emergency fund and we'll get into that
as we go through this so secondly it
protects you against job loss the number
one real reason why we build our
emergency fund is if we get laid off or
we lose our job we're going to be able
to protect ourselves and protect our
finances it's a protection plan
surrounding your finances so that you
don't go backwards number three is your
emergency fund allows you to continue to
pursue Financial Independence one of the
most important things that you can do is
go after Financial Independence and it
can interrupt Financial Independence if
you have an emergency that happens and
you don't have the funds to take care of
it so I want every single person
listening to this podcast my entire goal
for all of you is to Achieve Financial
Independence I want you to get to a
point in time one day where you can
either choose to work if you want to or
not and so Financial Independence is in
the cards for you 100% but you need to
ensure that you have an emergency fund
and that's why it's one of the biggest
steps up front number four is it gives
you peace of mind you are going to sleep
so much better at night knowing you have
cash on hand in case an emergency
happens I remember prior to having an
emergency fund I would stress out about
little different transactions that would
come up or things that would just
surprise me all the time after your boy
sleeps like a baby when you have that
emergency fund so really important to
have that for Peace of Mind next you
avoid highin debt see what a lot of
people do is that they get themselves
into a paycheck to paycheck situation
which the emergency fund gets you out of
by the way uh but they get themselves
into a paycheck to paycheck situation
then an emergency arises and what do
they utilize they only have one option
left and that's to swipe that credit
card to fix the situation well what
happens when you do that all of a sudden
you go into high interest debt that's
any debt above a 6% interest rate means
you have high interest debt this my
friends is a pants on fire emergency the
last thing you want to do is go into
high interest debt so we need to make
sure we avoid that at all costs and
protect ourselves with the emergency
funds this also number six protects our
investments because if you do not have
an emergency fund what are you going to
rely on you can't figure out you know
where you're going to pull this money
from so all of a sudden you start to
interrupt compound interest
unnecessarily by pulling from your 401k
or your raw firea we want to make sure
we are protecting our investment it is
really powerful to allow compound
interest to work for us so that one day
we can become financially free and not
have to work another day in our lives
that's my goal for each and every single
one of you number seven it helps you
maintain your lifestyle if you get laid
off or something happens in life you
don't want your kids to feel that stress
you don't want your family to feel that
stress it's going to help you maintain
your lifestyle so that you can move
forward and figure out what the next
action plan is also it helps you plan
for Life Changes say for example you are
going to have your first kid or maybe
your second kid and daycare costs as we
all know as parents right now are
absolutely out of control and so maybe
you've decided hey I'm actually going to
be the spouse that stays home maybe it's
the husband maybe it's the wife and you
are going to be the spouse that stays
home with your kids well guess what you
can make those family decisions and
they're a lot easier to make if you have
an emergency fund in place maybe you
just want to test it out for a couple of
months to see if you can actually get by
well the emergency fund is going to
cover those additional expenses if you
cannot get by and your little experiment
fails and so this is going to be
something I definitely would consider as
you go through this also it helps you
for other life changes like moving
across the country for a better job most
people can't take advantage of
opportunities like that because they
don't have cash on hand and I think it's
really important to have this cash on
hand it saves you and actually allows
you to make more money in the future
another one is health and well-being so
Financial stress can negatively impact
your health your well-being the
emergency fund helps you sleep better it
helps you reduce that stress and anxiety
and that's what I want for each and
every person listening to this podcast I
get so amped up about that I'm so
excited what money can help you do and
so if you can figure that out it's going
to help your health and well-being as
well also it's going to help you against
any economic downturns it's going to
help you when you need emergency travel
maybe a family member across the country
gets sick or you have to go to a funeral
there's so many different things that
the emergency fund helps with I can list
off benefits for days if you want me to
and so the point of this is you need to
do this first it is the most important
thing that you should be doing outside
of getting that 401k match because it's
100% rate of return it's 100% free money
but you need to have a cushion I'm going
to show you how to get that cushion in
today's episode so if you're ready for
it let's get into it all right so we are
going to be diving into the 136 method
when it comes to our emergency funds and
handling and managing this cash on hand
now this is going to come into play
where you're going to see it across
where you need to be utilizing and
putting your dollars first and you're
going to see me talk about number one in
the 136 first number one stands for one
month of expenses now there are some
things that are going to be factored
into one month of expenses here and
there's some things you need to be doing
and so this process is phase one is you
want to try to get you one month of your
monthly expenses that you spend in cash
saved okay now the question maybe you
know where am I going to save this money
where am I going to put it you're going
to put it in a high yield savings
account we'll talk more about high yield
savings accounts here in a second but
you're want to put it in a high yield
savings account because you earn a piece
of interest when you start to do that so
if you are on phase one you are starting
off early here I want you to get to one
month of expenses now what should this
number come out to this number should
come out to a few th000 usually for most
people it's going to be somewhere
around5
67,000 uh depending on where you live it
might even be higher but you want to get
to that one month of expenses but you
know if you have a family or something
else along those lines you're spending
10 15 $166,000 a month possibly
depending on where your income is and so
having those one Monon expenses in play
is going to be really really important
now there are a lot of people out there
who have said save $11,000 in an
emergency fund and that is where you can
get started that'll get you to cover you
know little expenses sure that's a great
first phase goal but for most people the
average emergency comes out to
$2,500 and so that's really not going to
cover most emergencies and you're still
going to have to reach for that credit
card or tap into those investment
accounts I don't want that for you
whatsoever so you try to get to one
month expenses as fast as you possibly
can is the number one thing now you
should not be doing anything else I'm
talking about investing I'm talking
about doing anything else with your
financial situation until you can get to
this one Monon expense number really
really important to get to this point in
time now for those of you who are
listening who live paycheck to paycheck
and I know there are some folks out
there we've done episodes and talked
about this I've help some of you solve
some of your paycheck to paycheck
problems if you're living paycheck to
paycheck and you're listening to me
right now and you're saying I don't even
know how I can get to that one month
expenses every time I just start to save
a little bit of cash it disappears
because these emergencies do not stop
coming up they come up all the time and
I need cash on hand a lot of times the
reason why you're having more urgencies
than most is because we need to figure
out a way to solve another side of the
equation on this another side of the
problem and you can only cut back if you
don't make a lot of money you can only
cut back on so much expenses now if you
make a lot of money if you're making six
figures or more and you can't get ahead
saving up for that emergency fund and
you live in normal places that aren't
like New York City or something like
that then we need to have another
conversation where you need to look at
cutting back expenses but the majority
of people who do not earn enough income
the income side of the equation is going
to be the biggest problem for them and
so we need to figure out a way to
increase your income so that you can
start to get ahead with your money and
save up that one month of expenses in
phase one here and so it's really really
important we got to get that Financial
footing got to get that Financial
foundation in fact I want you to spend a
lot of time focusing on how can I set up
myself to earn more income by developing
specific skills getting a better job
getting a promotion all of these are so
important to your financial journey and
if you can figure out how to start there
you will I promise you be able to get
ahead by starting to increase your
income why because now you can take
those income increases and put them
towards the one month of expenses that
you are trying to save up for here to
getting your number one goal going there
is power in having money saved on the
side you know why because if your roof
starts to leak there's money just there
saved to take care of that if your
spouse loses their job there's money
just there to take care of that if you
are worried about your car breaking down
or you need to replace a big thing in
your car maybe you need new brake pads
or you need new tires the money's just
there to take care of it stress melts
away and if you're living paycheck to
paycheck listen I know how you feel I
was there I understand that feeling and
how terrible it feels and the only thing
I was able to do to solve that problem
was to increase my income you're going
to hear people left and right say oh you
got to cut back on your expenses you can
only cut back so much you can't cut back
when you are barely getting by as it is
and so you have to make sure that you
find a way to earn more unfortunately in
this world we all start at a different
level some people have more privilege
than others and so our starting line in
this race that we call life is going to
be in different locations you may be
starting way farther back than everybody
else privilege is real but I know you
can do this and I know you can make a
change in your life and that is my goal
for every single person listening to
this show is I know you can make that
change I know you can get to that next
level but it's up to you to make the
decision you could be the deciding
factor in your family's life you could
change your family's tree but the only
way that you can do that is by first
learning how to earn more and so if you
are trying to struggle to get to that
one month expense I know you can do it
but we got to find ways so that you can
earn more money because once you start
to get that one month saved we can
really start to crank it out and now we
can go attack other things so things
like highin debt for example we want to
make sure that we are starting to attack
High interest debt once we get this one
month saved up because we want to attack
after that high interest debt it's
really really important to to get one
month first and then we can go after
things like credit cards or student
loans or all those different things so
if you're asking yourself hey should I
be paying high interest debt or should I
get this one month saved up first one
month should get saved up first okay so
you have one month of expenses there why
because otherwise you're going to try to
pay down debt and you're going to get
off track and then you're going to
increase the amount that you have in
debt and so this is just going to be a
cycle that happens over and over and
over again one month make the minimum
payments okay on that high interest debt
then what we're going to do is after we
get that one month saved up now we're
going to attack that high interest debt
and we are going to get after that high
interest debt and we want that high
interest debt paid off as fast as we
possibly can still starting to
contribute a little bit to this
emergency fund because we want this to
grow to the next phase but we really
want to be attacking that high interest
Deb because that is compounding against
you and I want to make sure that you are
taking that down okay because you can
get financially derailed without having
any emergency fund whatsoever and trying
to pay down high interest debt so you
got to make sure that you take care of
the one month then you go to the high
interest debt and we're going to go to
that next level after we start this so
this is phase one is one month of
expenses you heard that right if you
can't get to one month of expenses we
got focus on increasing our income we
have a lot of episodes talking about
income increases and we're going to be
talking about a lot more because is the
most important thing in your personal
finance journey is to increase your
income and then we'll learn how to keep
that income once you start to increase
it so developing your skills becoming a
person of utility meaning that
unfortunately in this life we are all
just making whatever our utility is and
so we got to make sure that we are
increasing that utility by focusing on
ourselves and learning skills to
increase that income reading books doing
all these different things are going
going to help us in that process so that
we can get better at sales and
communicating and all these different
things that will help us earn more money
now let's get to the next phase which is
three all right so now that we have our
first one month of expenses saved up
okay and if you have your highin debt
paid off those are the two things I want
you to be doing first at the first one
Monon level is one month save first High
interest debt paid off meaning any debt
above a 6% interest rate outside of your
mortgage or maybe some you know other
outside of your mortgage or any of those
loans then what we want to do is we want
to go to three and three is three months
expenses now at three months expenses
this is the phase that you want to get
to at a minimum it is there to protect
you against anything in life that
especially as you are starting to build
wealth three months get you part of the
way safe and this is going to be
something that a lot of people will
argue with me with I don't think three
months is enough to just stop at I don't
ever think it will be and I'll explain
exactly why uh later but 3 months will
help give you some flexibility here
it'll give you way more flexibility in
life than one month will and it'll start
to be something that you can really
really take to start to build wealth now
once you hit this three-month level I
also want you to start investing this is
the point in time where you definitely
want to start investing so that you can
get your money to start working for you
in compounding really really important
now I know how difficult this can be it
is not an easy thing to just save up 3
months of expenses it's a lot easier to
say than it is to put in to practice
because if you're spending 5 10 15 grand
a month all of a sudden now you have to
say 15 30$
45,000 in cash before you can start to
get to the next level but you got to
have three months of expenses in place
otherwise you could go backwards
financially and I don't want that for
you so we got to make sure that we are
getting to the three-month point in time
then we start investing and once you hit
this level when you start investing you
can start investing in a your HSA is
what I would look at first B your Roth
IRA or your raw 401K as well those post
tax accounts because they grow taxfree
and I absolutely love them for that and
then your 401k or your pre-tax accounts
also so those three are the ones that I
would look at past once you get to this
level and if you are have questions
about those we have tons of episodes on
the HSA the Roth IRA the 401K so we
won't dive into that on this episode but
this is something I think that you
definitely want to make sure that you
are looking into more so as you start to
develop this and so you want to start
working towards the next phase but also
you I want you start investing because
you can't wait too long before you start
to allow your money to compound you
can't get those years back in the Roth
IRA or the 401K so I really want you to
get those dollars working at the
three-month level before you actually
complete your final emergency fund which
we're going to be talking about here as
we go through this so let's review here
each section I'm going to be reviewing
you want to get your one month of
emergency fund expenses saved up boom
that is the first thing then you want to
pay off high interest debt once you have
that one month saved up in addition to
continuing you know small amounts of
money towards your emergency fund to
continue to build towards 3 months once
you hit 3 months of expenses in your
emergency fund now we are going to be
putting dollars and allocating dollars
towards Investments you can go 50/50 if
you want you're trying to think through
percentages I want you to take a
percentage of your income and start to
invest those dollars in these accounts
and I want you to plan it out and make
sure you understand that you are now
working towards that retirement number
so put as much money as you possibly can
working towards that retirement number
while still continuously saving and
trying to grow this emergency fund over
time now listen I'm saying this you know
put some in this emergency fund put some
in this investment account and a lot of
you are probably looking at yourselves
or thinking to yourselves oh that's a
lot of money I got to be saving up here
well I want you to allocate percentages
so when you think about you know how
much you should be saving when I say you
need to be saving 20% of your income I
mean emergency funded Investments that's
the two things I'm talking about when I
say that and so I want you as a minimum
to be saving 20% of your income and
moving to 25 30% if you can and then
growing it from there as your income
starts to increase the beautiful thing
about increasing your income is that all
of a sudden you can increase the amount
that you're putting towards these things
and you're going to hit those goals so
much faster that's why we increase our
income in order to put them towards
wealth building activities and putting
them towards our money value so between
those two things you can allocate some
of these dollars you know if you need to
put 15% towards Investments and 5%
towards your emergency fund after you
hit three months because that's the the
executive decision that you as a family
or you as your individual is are making
that is more power to you but but making
sure you're contributing to each one so
that you can start to grow each one is
going to be really really important and
you also got to make sure that you run
your Investments through something like
a compound interest calculator there's a
bunch of them out there and those are
going to help tell you hey by the time I
if I just keep contributing this amount
of money this 15% or 20% whatever it is
if I continue to contribute this amount
I will have X amount of dollars by the
time I want to retire you need to run
those simulations if you want a full
episode on that please email me uh and I
will do that to show you exactly how
that works but this is something where
as you start to progress you want to
make sure that you're planning this out
now let's get to the next level which is
six all right so the next level is going
to be six months of expenses now getting
to six months of expenses Savings in
your savings account in your high yield
savings account at that is the goal
that's goals right there is we want to
get to six months of expenses I do not
think whatsoever that saving up 3 months
of expenses will protect you against
life in the long run and I'm going to
explain exactly why in an example here
because I think it's really important
for a lot of people to think through
this because most people actually
haven't thought through the entire
process of why it's three or six months
of expenses most Financial gurus out
there will say three months is fine
that's the minimum that's how much you
can have I could not agree less I do not
agree with that notion whatsoever what I
think is that I'm going to give you an
example and this is why I think this way
so let's say for example that you are
laid off unexpectedly from a job life
just Smacks you right smack in the face
and now you're trying to think through
well I got to take a couple of days to
assess what I need to do next sometimes
that choice is super easy you go through
this process and you're like hey I know
exactly what I want to do next in fact
I've been networking for a long time let
me go talk to a few individuals that
I've been networking with but other
times what to do next after you get laid
off is a much more difficult process do
you want to make a career change do you
need to go out and start finding and
sending out your resumes you never
thought this day was coming and so now
you have to think through what am I
going to do next so you start to begin
to polish off your resume and you start
to update your LinkedIn profile and do
whatever else you need to be doing to
start your job hunt and before you know
it you're doing all these things you're
updating these forms you're just getting
over the fact that you just got laid off
unexpectedly all of a sudden like 10
days have passed and so now you're
sitting at this point in time where
you're doing this all this setup work
but in addition 10 days have passed
since you've been laid off and you are
starting to have to utilize some of your
emergency fund cash now maybe you got
lucky maybe you got a severance maybe
they gave you some cash when you left
that is absolutely amazing that is not
guaranteed and we need to focus on the
things that we can control and so you've
started to get everything set up but you
really haven't made any progress towards
actually finding your next place of
employment and so it's really important
to do that now if you're someone like a
server or you're a bartender and you're
in the or you know one of those
Industries it may be a little easier to
get back up on your feet and go find
another job because there's a lot of
those jobs available out there but if
you're someone who's working in the
corporate world or maybe you're an
executive or you're a high level person
this is going to take some time to find
your next job because you got to find
the right fit for your lifestyle and so
now 10 days of pass a little Panic might
have set in and so you start your job
search and now let's do a little math
here let's say for example you send out
One resume and one cover letter you know
every single hour so that's about five
to eight that you're sending out every
single day cover letters take some time
to get right and so it's really not
realistic to be sending out a ton of
different resumés unless you are just
tweaking some of them now ai is helping
with a lot of people write their cover
letters where they can do it much faster
so I would look into that if you are
doing a high volume of sending out some
of these resumés but you need to spend
the rest of your day trying to network
as well so you need to spend some time
applying for jobs and some time
networking for some of these jobs and so
one of the things I really want you to
think about here is yeah you can try to
apply to a small pool but if you haven't
done the networking work up front you're
going to have to cast a wide net first
and then once you land your next job
then you're going to be able to go back
and start to really tailor down your
pool for the next time if this ever
happened again and so you're starting to
send your resumés out you're spending
time networking with people and this
process alone can take months before you
actually land an interview and the
higher level the job the longer this can
actually take all while not getting paid
and so we have all this time coming and
we have not gotten paid yet and now we
could be months into this without
getting paid do you think three months
is still enough let's keep going once
you start to do this then you land
interviews now interviews are not the
thing where you walk into somebody's
office anymore and you have an interview
for 10 minutes unless you have a
non-corporate job corporate jobs for the
most part are going to take you a couple
rounds of interviews before you even get
through the entire process and then you
could get to the end and have no idea
you didn't get there once you start
Landing interviews you have to go
through multiple rounds of interviews
and this can take days this can take
weeks and then all while prepping and
sending out more resumés and trying to
network network in case this doesn't
land because it would be a Fool's errand
to go through an entire interview
process and not continue to send out
your resume other places just crossing
your fingers and hoping you land this
job because that would take even more
time this is a Race Against Time a lot
of times but also trying to find the
right fit and so you want to make sure
that you are working this process over
and over and over again and this is why
once this process goes through here
maybe you land an interview and you
finally land your job four to five to
six months in this is why I'm not
comfortable with three months because it
can put you in a very risky situation
once you start to go through interview
process and try to land your next job
now you be may be in an industry with
Fair very high demand we've talked about
this in the past if you know your
industry is in very high demand what
happens when that demand shifts in one
day that demand can shift overnight and
so I think you just need that added
protection so that you can have the
additional months in place in order to
figure out what the heck you're going to
do next so it's very important to think
that through what if you get laid off in
a recession what if your car breaks down
while you're job hunting or additional
emergencies in life happen while you're
job hunting and trying to live off this
money 3 months is just not enough I do
not believe it's enough I don't think
you can get there because there are so
many things that we have no control over
what we do have control over is having
cash on hand in fact my emergency fund
is much more than 6 months now and I'll
even talk more about that here in a
second because that's my next point is
so you get from one month you get to
three month you get to six months okay
six months is the ultimate goal but now
it's going to come down to each
individual once you achieve six months
and Beyond you're going to save until
you're slightly uncomfortable as one of
my favorite quotes because you want to
figure out how much cash do I need on
hand to really be able to have my my
Swan number now what is the swan number
the swan number is a number that I like
to call the Sleep well at night number
and I want you to think about this I
want you to ingrain this in your brain
what is my Swan number is it six months
expenses is it eight months expenses to
have a little extra cushion is it 9
months expenses is it 10 months expenses
you need to figure out what you want to
save going forward and most people who
want to drisk their lives have more cash
on hand RIT Sati who is the author of I
will teach you to be Rich he keeps at
least one year of expenses on hand at
all times Alex horos who's an individual
who teaches a bunch of people about
business he keeps millions and millions
of dollars on hand just because that's
what makes them comfortable and so for a
lot of people just making sure you
figure out what your number is is going
to be really really important your
finances I want you to hear this your
finances don't have to be perfectly
optimized for growth they don't they
don't have to be perfectly optimized for
what the math said you want them to be
optimized to reduce your stress and anx
xiety that's what you want them
optimized for you need to save until you
can sleep well at night which is why we
call it the swan number sleep well at
night now here's one other thing to to
notice as well is that your Swan number
may change over time so for example I
was much more comfortable with less cash
on hand uh before I was married once I
got married I wanted more cash on hand
because now I have two people to take
care of once I had kids I wanted more
cash on hand because now I have three
people to take take care of now four
people to take care of and now we have
another one on the way so five people to
take care care of and so my number
changes all the time you may start at 6
months and all all of a sudden as life
progresses you want 16 months doesn't
matter where you want to be this is
really important to make sure that you
just understand that this number can
change over time and it is okay for that
goalpost to continue to change figure
out what your Swan number is and go from
there I want everybody to remember that
next we're going to dive into what you
should do if you are self-employed or an
entrepreneur and then we're also going
to talk about as you approach retirement
all right so next we're going to be
talking about a business owner and if
you are a business owner you know for a
fact that sometimes you need some cash
on hand to take care of business matters
and so if you're self-employed or you're
an entrepreneur you need to have even
more money saved than just a regular
person why because if something happens
in your business you want that business
to continue you need to have cash on
hand in order to take care of situations
and so the more cash you have saved up
the longer you can keep a business alive
especially if it's struggling and so 9
months is the minimum for me for people
who are self-employed or if you are an
entrepreneur you need to at least have 9
n months of cash on hand to take care of
a lot of different situations and also
if you're a business owner it may take
you a little longer to find a job if you
decide you're going to shut down the
business and you're going to go out and
find a job and so making sure you at
least have nine months at minimum saved
would be a the amount that I would have
to open a business and be the amount I
would have if I'm a business owner and I
didn't think through this already and so
making sure you have nine months at a
minimum I would much rather have 12
months or more um but at least nine
months at a minimum because I know how
difficult that can be to save up now if
you're a person who is going to start a
business I want you to have 9 months
saved up before you start that business
and I want you to make sure that that
business is already earning money before
you just jump into this next thing do
not start a business and go directly
into that business without it earning
any income taking care of your income in
fact I would not ever jump into a
business until it is matching the amount
of money that I am making at my day job
and or you can see a direct correlation
between you not having enough time
because of your day job and the amount
of money that you can be making those
are the only two ways that I would do
this and I like to think of this as
walking into the ocean okay maybe your
goal is to go underwater into the ocean
but you want to progressively which is
you going full-time but you want to
progressively start walking into the
ocean slowly over time okay because as
you start to walk into the ocean now you
get your feet in then you get your knees
in then you get your waist in then you
slowly get your stomach and you start to
progress towards actually diving into
your new business endeavor and your
income is the representation of the
water and so as you start to get closer
and closer to diving fully in all of a
sudden your income is also progressing
with you and this makes a very safe way
to actually get into that water and and
Go full on out so I would have nine
months of expenses and I would make sure
the the business is making enough money
to cover my expenses uh month in and
month out before I even take that dive
Warren Buffett has a quote for investors
who did not do their due diligence and
there's a lot of things that you know
that go into this quote but he said when
the tide rolls back we see who's
swimming naked and it is one of my
favorite quotes because if you do not
have that Financial Foundation you don't
have cash saved on hand that is that
quote also coincides with something like
that and that's why I love using that
water analogy take your time and leave
working in your business full-time when
you're 100% ready you got to be safe
when it comes to that all right and then
now let's talk about retirees for
retirees I am of the opinion that
retirees should have at least one year
of cash on hand but really two to three
years of cash on hand now a lot of you
may be saying to yourself that is way
too much cash on hand and sure if you
are someone who hates having cash and it
drives you crazy and it actually
stresses you out to have too much cash
on hand I don't really have an issue
with you having a little less cash on
hand when you're retired but for me
personally I'm going to have multi-
years of cash on hand here's why
especially if interest rates are like
you know 5% right now I have no problem
doing that whatsoever but here's the
real reason why is because say for
example we have a year like the Great
Recession you go through retirement and
you're three months into retirement and
you're playing golf or pickle ball or
you've going full on into your hobbies
you're fishing every single day you're
having a grand old time you're traveling
with your spouse you're going all over
the world and you're doing all this fun
stuff let's say 3 months into your
retirement though all of the sudden an
event happens like the Great Recession
and the Great Recession happens and
takes your Investments and wipes them
down to 50% of their value now as we
know as long-term investors these
investments will go back up in value
they will correct themselves at least
historically they have and so we weren't
going to really stress out about that as
much but we will if we just retired and
so one of the things we want to think
through is well if I have a couple of
years cash on hand I can utilize that
cash while my investments are knocked
down to live off of and then as my
investments start to recover over the
next couple of years then I'll be able
to start to draw down on my investments
so for me it is just a way to drisk my
retirement and ensure that my retirement
is going to be successful because you
can increase the probability of success
by having more cash on hand now it is
very difficult to save multi-e of cash
on hand especially if you started
investing and you're just trying to get
to retirement to have enough money I get
it so that's not something I think every
single person should have but having at
least one year of cash on hand I think
is pretty important so that you can
protect your retirement going forward in
the future and then also just thinking
through some of the additional bonuses
that you can have now I would utilize
something like Social Security as a
forced additional cash on hand so I
would save enough to cover my living
expenses in my investment accounts
Social Security is going to be that
added bonus that's going to allow you to
have extra cash on hand and then you
also have your emergency fund that to me
is a fortified retirement that gives you
three different angles for you to have
income coming in so that you can protect
your finances in retirement that's the
number one thing you want to do is just
drisk everything and protect your
finances and so retirees I would rather
have uh way more cash on hand I would
not take the risk of having you know
just a couple of months uh uh in your
emergency fund so I think you need to
have one year or more but you also need
to make sure you don't have too much
cash on hand so for a lot of people like
I was alluding to earlier if it stresses
you out you definitely want to make sure
that you do not have too much cash on
hand why because your money can work way
harder than you can in Investments and
so to optimize the amount of money that
your money can make you don't want to
have too much of cash on hand I
increased my emergency fund amounts past
six months once I started to really hit
my investment account numbers and so
once I started to allocate enough money
towards my investment accounts my income
started to increase then I would take my
extra income and start to beef up my
emergency fund more see how this cycle
is starting to work and so I don't want
you to have too much cash on hand early
on like you're saving for a year
emergency fund before you even start to
invest your dollars no I want you start
to investing at that three-month level
and then after that as you start to
progress then you'll be able to uh see a
big big difference there then you'll be
able to see a big big difference and you
can increase your income take those
extra dollars put them towards the
emergency fund because your your money
can work way harder than you can you
need to a also outpace inflation if
inflation is going to erode away at your
money if you're not investing your
dollars and you will never get ahead so
you have to make sure that you're
investing to to outpace inflation and
then lastly you'll never be able to hire
without investing so you have to invest
those dollars over time now where do you
save this money number one is a high
yield savings account always put your
emergency fund if you don't know where
in a high yield savings account is the
easiest place I would recommend anybody
go look I keep mine an ally uh there's a
bunch of great ones out there though
there's some with higher interest rates
betterment uh all of those I'm not
associated with any of them so um
there's a bunch of great high yield
savings count just pick one that is you
know reputable uh that you like you like
some of the benefits in there and
utilize that one number two is you can
use something like a CD ladder and we've
done episodes in the past on a CD ladder
if you see that CDs have way higher
interest rates than a high yield savings
account and it's worth it for you to do
a CD ladder then you can go do that or
you can also utilize something like a
lowcost bond fund um for a portion of
your emergency fund I would not really
make it that complicated though honestly
I would just use the high yield savings
account that's the route that I like uh
and I like to simplify simplify simplify
as much as possible if you wonder why I
use Ally the only reason why I use Ally
is because you can actually budget and
what they call savings buckets inside of
Ally and so when you're in there you can
utilize this this budging system
essentially that says hey this portion
of my emergency fund is Sav for car
repairs this portion is Sav for home
repairs and you could do some cool stuff
like that so that's why I use it but
there's other other uh bank accounts out
there that can also do that now too so
um check out the one that you think
might work best all right so the last
section here I want to talk through is
how to maintain that emergency fund and
this is one that I think most people
don't talk about but I know for a fact
and I've talk to people who have an
issue with this and how they don't know
exactly how to maintain or how to refund
their emergency fund and so we're going
to talk about that today and that's why
the 136 method was actually developed it
also helps you refund your emergency
fund as well um so that you can get back
to exactly where you wanted to go and so
you may have never been told this before
or it might be something that you just
like to have this prize on the Shelf but
your emergency fund is there to be used
and I want you to use your emergency
fund for actual emergencies what a lot
of people do is they like to look at
their emergency fund like a you know a
trophy on the mantle and they they don't
really like to actually use their
emergency fund and they try to find
other ways to take care of emergencies
instead of using the money as it was
intended and so this is something I
think that is very important for all of
us to really really look at uh as we
start to progress is that you need to
make sure that you're using your
emergency fund and so you know when
emergencies come up your car breaks down
you don't have the cash on hand already
then you can use it now if you're
someone who is really trying to build it
up to like that one year mark and you
want to earmark a couple of extra then I
would just add additional cash to it and
so that you can you know if emergencies
come up then you have cash on hand to to
actually have that going but don't keep
your emergency fund looking pretty on
the mantle use it when you need it now
the 136 method was developed and the
reason why I like to talk about this for
refunding it as well so say for example
you need to use your emergency funding
you had a big big uh emergency come up
maybe you had a big medical bill that
wiped out you know one or two months of
your emergency fund I would follow the
same process meaning I would get to one
month refunded in your emergency fund
okay and if you need to write refund
three months then I would go one month
refunded I would try to get back to
three months again before I started to
invest so I take my investing dollars
and attack towards getting to three
months get it built back up and then you
can start investing again and so I just
continue following the same process and
I would follow that same process if
you're really trying to build it towards
12 months or even larger amounts um you
can also follow that same process but
it's meant to be utilized over and over
and over again in this cycle over and
over and over again as you start to want
to build it more and more and more so as
you want to start to build this
emergency fund more and more you want to
just continue the cycle over and over
again for the 136 method really
important to to think through this
process so that you can get to the point
in time where you are achieving your
financial goals and listen emergency
fund is there for you to use it's there
to protect you against life and it is
one of the most important things in
personal finance that you need to
understand cannot thank you guys enough
for listening to this episode I truly
hope you got value out of this episode
we are trying as hard as we possibly can
to bring you as much value as possible
so that you can build generational
wealth for you and your family and be
that first person in your family to have
that generational wealth cannot thank
you guys enough for listening to this
episode I truly appreciate each and
every single one of you and we will see
you on the next episode thank you again