1-3-6 Emergency Fund Method — Full Breakdown & Transcript

[00:00] a lot of times the reason why you're

[00:01] having more urgencies than most is

[00:03] because we need to figure out a way to

[00:06] solve another side of the problem and

[00:07] it's the folks who actually have cash on

[00:10] hand are the ones that are always able

[00:11] to build wealth because they can protect

[00:13] their finances you should not be doing

[00:15] anything else until you can get to this

[00:18] one Monon expense number you may be

[00:20] starting way farther back than everybody

[00:24] else privilege is real but I know you

[00:26] can do this and I know you can make a

[00:28] change in your life and that is my goal

[00:30] for every single person listening to

[00:32] this show your finances don't have to be

[00:34] perfectly optimized for growth you want

[00:36] them to be optimized to reduce your

[00:39] stress and anxiety that's what you want

[00:41] them optimized for now today I'm going

[00:43] to be diving into a brand new framework

[00:46] for the emergency fund and I am super

[00:47] excited to to dive into this today

[00:49] because I have been spending a lot of

[00:52] time over the course of the last year

[00:53] beefing up my emergency fund we have a

[00:55] lot of Life Changes going into our lives

[00:57] at the Jin Cola household and so I have

[00:59] been spending a lot more time getting

[01:02] more comfortable with how much cash I

[01:03] want to have on hand and so because I've

[01:06] been doing this I've been working really

[01:08] hard on developing the perfect framework

[01:10] to a build your emergency fund but this

[01:13] is also the framework to help you manage

[01:15] and maintain your emergency fund because

[01:17] as we're going to talk about in this

[01:18] episode your emergency fund is something

[01:21] that needs to be used and I think a lot

[01:23] of people hoard cash and their emergency

[01:24] fund without utilizing it so we'll talk

[01:26] through how you can rebuild it if you

[01:28] have to use it we're going to go into

[01:30] how to actually build one out the proper

[01:32] way and we're going to say how much cash

[01:34] you have to have on hand based on your

[01:35] life experiences now we've talked a ton

[01:38] about emergency funds in the past this

[01:39] is going to be the main framework that

[01:41] we go by so if you ever hear me talking

[01:42] in the future about the 136 method this

[01:46] is going to be the method that we've

[01:47] developed and the one that we want to

[01:49] make sure that you are following uh

[01:51] going forward if you are interested in

[01:53] you know Building Wealth generational

[01:54] wealth and and mastering your money and

[01:56] you follow all the other stuff that we

[01:57] do so this is something I am really

[01:59] really excited about and one thing I

[02:00] alluded to is we will talk about by

[02:02] financial situation and so we're going

[02:04] to talk through if you are a 9 to-5

[02:06] worker we're going to talk through if

[02:07] you're an entrepreneur and you own your

[02:09] own business how much you should have on

[02:10] hand if you're a retiree and so it's

[02:12] really important to make sure that we

[02:13] look at these life stages in our lives

[02:15] to make sure we have enough financial

[02:16] protection going forward first I'm going

[02:18] to dive into why we need an emergency

[02:20] fund so if you know what an emergency

[02:21] fund is and you know why you need to

[02:22] have one you could skip ahead if you

[02:23] need to but I'm first going to dive into

[02:26] why we need one number one is if you

[02:27] don't know what emergency fund is it's a

[02:29] bunch of that you set aside on hand when

[02:32] emergencies happen now it's not if an

[02:35] emergency is going to happen but when

[02:37] will an emergency happen emergencies

[02:39] happen in life every single day your car

[02:40] is going to break down you may lose a

[02:43] job you may have an emergency medical

[02:45] bill a pet may get sick your kids may

[02:47] get sick there are so many different

[02:48] life scenarios on when you're going to

[02:50] need cash on hand and it's the folks who

[02:52] actually have cash on hand are the ones

[02:55] that are always able to build wealth

[02:56] because they can protect their finances

[02:58] this is why it is the number one thing

[03:00] that we want you to be doing with your

[03:01] money first is to start to build up the

[03:04] emergency fund and we'll get into that

[03:05] as we go through this so secondly it

[03:08] protects you against job loss the number

[03:09] one real reason why we build our

[03:11] emergency fund is if we get laid off or

[03:13] we lose our job we're going to be able

[03:16] to protect ourselves and protect our

[03:18] finances it's a protection plan

[03:20] surrounding your finances so that you

[03:22] don't go backwards number three is your

[03:25] emergency fund allows you to continue to

[03:27] pursue Financial Independence one of the

[03:29] most important things that you can do is

[03:31] go after Financial Independence and it

[03:33] can interrupt Financial Independence if

[03:35] you have an emergency that happens and

[03:37] you don't have the funds to take care of

[03:38] it so I want every single person

[03:40] listening to this podcast my entire goal

[03:42] for all of you is to Achieve Financial

[03:44] Independence I want you to get to a

[03:45] point in time one day where you can

[03:47] either choose to work if you want to or

[03:49] not and so Financial Independence is in

[03:51] the cards for you 100% but you need to

[03:55] ensure that you have an emergency fund

[03:56] and that's why it's one of the biggest

[03:57] steps up front number four is it gives

[04:00] you peace of mind you are going to sleep

[04:02] so much better at night knowing you have

[04:04] cash on hand in case an emergency

[04:06] happens I remember prior to having an

[04:07] emergency fund I would stress out about

[04:09] little different transactions that would

[04:11] come up or things that would just

[04:12] surprise me all the time after your boy

[04:15] sleeps like a baby when you have that

[04:17] emergency fund so really important to

[04:18] have that for Peace of Mind next you

[04:21] avoid highin debt see what a lot of

[04:23] people do is that they get themselves

[04:25] into a paycheck to paycheck situation

[04:27] which the emergency fund gets you out of

[04:29] by the way uh but they get themselves

[04:30] into a paycheck to paycheck situation

[04:32] then an emergency arises and what do

[04:34] they utilize they only have one option

[04:36] left and that's to swipe that credit

[04:37] card to fix the situation well what

[04:39] happens when you do that all of a sudden

[04:42] you go into high interest debt that's

[04:44] any debt above a 6% interest rate means

[04:47] you have high interest debt this my

[04:49] friends is a pants on fire emergency the

[04:52] last thing you want to do is go into

[04:54] high interest debt so we need to make

[04:56] sure we avoid that at all costs and

[04:57] protect ourselves with the emergency

[04:59] funds this also number six protects our

[05:01] investments because if you do not have

[05:03] an emergency fund what are you going to

[05:05] rely on you can't figure out you know

[05:06] where you're going to pull this money

[05:07] from so all of a sudden you start to

[05:09] interrupt compound interest

[05:11] unnecessarily by pulling from your 401k

[05:14] or your raw firea we want to make sure

[05:16] we are protecting our investment it is

[05:17] really powerful to allow compound

[05:19] interest to work for us so that one day

[05:21] we can become financially free and not

[05:23] have to work another day in our lives

[05:25] that's my goal for each and every single

[05:26] one of you number seven it helps you

[05:28] maintain your lifestyle if you get laid

[05:30] off or something happens in life you

[05:32] don't want your kids to feel that stress

[05:33] you don't want your family to feel that

[05:35] stress it's going to help you maintain

[05:36] your lifestyle so that you can move

[05:39] forward and figure out what the next

[05:40] action plan is also it helps you plan

[05:43] for Life Changes say for example you are

[05:46] going to have your first kid or maybe

[05:47] your second kid and daycare costs as we

[05:49] all know as parents right now are

[05:51] absolutely out of control and so maybe

[05:54] you've decided hey I'm actually going to

[05:56] be the spouse that stays home maybe it's

[05:58] the husband maybe it's the wife and you

[06:00] are going to be the spouse that stays

[06:01] home with your kids well guess what you

[06:03] can make those family decisions and

[06:05] they're a lot easier to make if you have

[06:06] an emergency fund in place maybe you

[06:08] just want to test it out for a couple of

[06:09] months to see if you can actually get by

[06:11] well the emergency fund is going to

[06:12] cover those additional expenses if you

[06:14] cannot get by and your little experiment

[06:16] fails and so this is going to be

[06:17] something I definitely would consider as

[06:19] you go through this also it helps you

[06:22] for other life changes like moving

[06:24] across the country for a better job most

[06:26] people can't take advantage of

[06:27] opportunities like that because they

[06:28] don't have cash on hand and I think it's

[06:31] really important to have this cash on

[06:32] hand it saves you and actually allows

[06:33] you to make more money in the future

[06:35] another one is health and well-being so

[06:37] Financial stress can negatively impact

[06:39] your health your well-being the

[06:41] emergency fund helps you sleep better it

[06:42] helps you reduce that stress and anxiety

[06:44] and that's what I want for each and

[06:45] every person listening to this podcast I

[06:47] get so amped up about that I'm so

[06:49] excited what money can help you do and

[06:51] so if you can figure that out it's going

[06:52] to help your health and well-being as

[06:53] well also it's going to help you against

[06:55] any economic downturns it's going to

[06:56] help you when you need emergency travel

[06:58] maybe a family member across the country

[07:00] gets sick or you have to go to a funeral

[07:02] there's so many different things that

[07:03] the emergency fund helps with I can list

[07:06] off benefits for days if you want me to

[07:08] and so the point of this is you need to

[07:10] do this first it is the most important

[07:12] thing that you should be doing outside

[07:13] of getting that 401k match because it's

[07:15] 100% rate of return it's 100% free money

[07:18] but you need to have a cushion I'm going

[07:20] to show you how to get that cushion in

[07:22] today's episode so if you're ready for

[07:24] it let's get into it all right so we are

[07:27] going to be diving into the 136 method

[07:31] when it comes to our emergency funds and

[07:33] handling and managing this cash on hand

[07:35] now this is going to come into play

[07:37] where you're going to see it across

[07:39] where you need to be utilizing and

[07:41] putting your dollars first and you're

[07:43] going to see me talk about number one in

[07:44] the 136 first number one stands for one

[07:49] month of expenses now there are some

[07:51] things that are going to be factored

[07:53] into one month of expenses here and

[07:54] there's some things you need to be doing

[07:56] and so this process is phase one is you

[07:59] want to try to get you one month of your

[08:02] monthly expenses that you spend in cash

[08:05] saved okay now the question maybe you

[08:08] know where am I going to save this money

[08:09] where am I going to put it you're going

[08:10] to put it in a high yield savings

[08:12] account we'll talk more about high yield

[08:13] savings accounts here in a second but

[08:15] you're want to put it in a high yield

[08:17] savings account because you earn a piece

[08:18] of interest when you start to do that so

[08:20] if you are on phase one you are starting

[08:22] off early here I want you to get to one

[08:25] month of expenses now what should this

[08:28] number come out to this number should

[08:30] come out to a few th000 usually for most

[08:33] people it's going to be somewhere

[08:34] around5

[08:36] 67,000 uh depending on where you live it

[08:38] might even be higher but you want to get

[08:40] to that one month of expenses but you

[08:42] know if you have a family or something

[08:43] else along those lines you're spending

[08:44] 10 15 $166,000 a month possibly

[08:47] depending on where your income is and so

[08:49] having those one Monon expenses in play

[08:51] is going to be really really important

[08:53] now there are a lot of people out there

[08:55] who have said save $11,000 in an

[08:58] emergency fund and that is where you can

[08:59] get started that'll get you to cover you

[09:01] know little expenses sure that's a great

[09:03] first phase goal but for most people the

[09:05] average emergency comes out to

[09:09] $2,500 and so that's really not going to

[09:11] cover most emergencies and you're still

[09:12] going to have to reach for that credit

[09:13] card or tap into those investment

[09:15] accounts I don't want that for you

[09:17] whatsoever so you try to get to one

[09:19] month expenses as fast as you possibly

[09:21] can is the number one thing now you

[09:24] should not be doing anything else I'm

[09:27] talking about investing I'm talking

[09:28] about doing anything else with your

[09:30] financial situation until you can get to

[09:33] this one Monon expense number really

[09:36] really important to get to this point in

[09:38] time now for those of you who are

[09:40] listening who live paycheck to paycheck

[09:42] and I know there are some folks out

[09:43] there we've done episodes and talked

[09:44] about this I've help some of you solve

[09:46] some of your paycheck to paycheck

[09:47] problems if you're living paycheck to

[09:49] paycheck and you're listening to me

[09:50] right now and you're saying I don't even

[09:52] know how I can get to that one month

[09:54] expenses every time I just start to save

[09:56] a little bit of cash it disappears

[09:59] because these emergencies do not stop

[10:01] coming up they come up all the time and

[10:04] I need cash on hand a lot of times the

[10:06] reason why you're having more urgencies

[10:08] than most is because we need to figure

[10:11] out a way to solve another side of the

[10:14] equation on this another side of the

[10:15] problem and you can only cut back if you

[10:17] don't make a lot of money you can only

[10:18] cut back on so much expenses now if you

[10:20] make a lot of money if you're making six

[10:22] figures or more and you can't get ahead

[10:24] saving up for that emergency fund and

[10:25] you live in normal places that aren't

[10:27] like New York City or something like

[10:28] that then we need to have another

[10:30] conversation where you need to look at

[10:31] cutting back expenses but the majority

[10:33] of people who do not earn enough income

[10:36] the income side of the equation is going

[10:38] to be the biggest problem for them and

[10:40] so we need to figure out a way to

[10:42] increase your income so that you can

[10:44] start to get ahead with your money and

[10:46] save up that one month of expenses in

[10:48] phase one here and so it's really really

[10:50] important we got to get that Financial

[10:52] footing got to get that Financial

[10:54] foundation in fact I want you to spend a

[10:56] lot of time focusing on how can I set up

[10:58] myself to earn more income by developing

[11:01] specific skills getting a better job

[11:04] getting a promotion all of these are so

[11:07] important to your financial journey and

[11:09] if you can figure out how to start there

[11:12] you will I promise you be able to get

[11:15] ahead by starting to increase your

[11:17] income why because now you can take

[11:18] those income increases and put them

[11:20] towards the one month of expenses that

[11:23] you are trying to save up for here to

[11:24] getting your number one goal going there

[11:27] is power in having money saved on the

[11:29] side you know why because if your roof

[11:31] starts to leak there's money just there

[11:34] saved to take care of that if your

[11:36] spouse loses their job there's money

[11:37] just there to take care of that if you

[11:40] are worried about your car breaking down

[11:42] or you need to replace a big thing in

[11:44] your car maybe you need new brake pads

[11:46] or you need new tires the money's just

[11:48] there to take care of it stress melts

[11:50] away and if you're living paycheck to

[11:52] paycheck listen I know how you feel I

[11:54] was there I understand that feeling and

[11:57] how terrible it feels and the only thing

[12:00] I was able to do to solve that problem

[12:02] was to increase my income you're going

[12:04] to hear people left and right say oh you

[12:05] got to cut back on your expenses you can

[12:07] only cut back so much you can't cut back

[12:10] when you are barely getting by as it is

[12:12] and so you have to make sure that you

[12:14] find a way to earn more unfortunately in

[12:18] this world we all start at a different

[12:20] level some people have more privilege

[12:22] than others and so our starting line in

[12:24] this race that we call life is going to

[12:27] be in different locations you may be

[12:29] starting way farther back than everybody

[12:32] else privilege is real but I know you

[12:34] can do this and I know you can make a

[12:37] change in your life and that is my goal

[12:39] for every single person listening to

[12:41] this show is I know you can make that

[12:43] change I know you can get to that next

[12:46] level but it's up to you to make the

[12:48] decision you could be the deciding

[12:49] factor in your family's life you could

[12:51] change your family's tree but the only

[12:53] way that you can do that is by first

[12:56] learning how to earn more and so if you

[12:58] are trying to struggle to get to that

[13:00] one month expense I know you can do it

[13:02] but we got to find ways so that you can

[13:03] earn more money because once you start

[13:05] to get that one month saved we can

[13:07] really start to crank it out and now we

[13:09] can go attack other things so things

[13:11] like highin debt for example we want to

[13:13] make sure that we are starting to attack

[13:14] High interest debt once we get this one

[13:16] month saved up because we want to attack

[13:18] after that high interest debt it's

[13:20] really really important to to get one

[13:21] month first and then we can go after

[13:23] things like credit cards or student

[13:25] loans or all those different things so

[13:27] if you're asking yourself hey should I

[13:28] be paying high interest debt or should I

[13:29] get this one month saved up first one

[13:31] month should get saved up first okay so

[13:33] you have one month of expenses there why

[13:35] because otherwise you're going to try to

[13:36] pay down debt and you're going to get

[13:37] off track and then you're going to

[13:38] increase the amount that you have in

[13:39] debt and so this is just going to be a

[13:41] cycle that happens over and over and

[13:43] over again one month make the minimum

[13:45] payments okay on that high interest debt

[13:47] then what we're going to do is after we

[13:49] get that one month saved up now we're

[13:51] going to attack that high interest debt

[13:53] and we are going to get after that high

[13:54] interest debt and we want that high

[13:55] interest debt paid off as fast as we

[13:57] possibly can still starting to

[13:58] contribute a little bit to this

[14:00] emergency fund because we want this to

[14:01] grow to the next phase but we really

[14:03] want to be attacking that high interest

[14:04] Deb because that is compounding against

[14:06] you and I want to make sure that you are

[14:08] taking that down okay because you can

[14:11] get financially derailed without having

[14:13] any emergency fund whatsoever and trying

[14:15] to pay down high interest debt so you

[14:16] got to make sure that you take care of

[14:18] the one month then you go to the high

[14:19] interest debt and we're going to go to

[14:21] that next level after we start this so

[14:23] this is phase one is one month of

[14:25] expenses you heard that right if you

[14:27] can't get to one month of expenses we

[14:28] got focus on increasing our income we

[14:30] have a lot of episodes talking about

[14:31] income increases and we're going to be

[14:33] talking about a lot more because is the

[14:34] most important thing in your personal

[14:36] finance journey is to increase your

[14:37] income and then we'll learn how to keep

[14:39] that income once you start to increase

[14:41] it so developing your skills becoming a

[14:44] person of utility meaning that

[14:46] unfortunately in this life we are all

[14:48] just making whatever our utility is and

[14:51] so we got to make sure that we are

[14:52] increasing that utility by focusing on

[14:54] ourselves and learning skills to

[14:56] increase that income reading books doing

[14:58] all these different things are going

[14:59] going to help us in that process so that

[15:00] we can get better at sales and

[15:01] communicating and all these different

[15:02] things that will help us earn more money

[15:05] now let's get to the next phase which is

[15:07] three all right so now that we have our

[15:10] first one month of expenses saved up

[15:12] okay and if you have your highin debt

[15:15] paid off those are the two things I want

[15:16] you to be doing first at the first one

[15:18] Monon level is one month save first High

[15:22] interest debt paid off meaning any debt

[15:24] above a 6% interest rate outside of your

[15:25] mortgage or maybe some you know other

[15:27] outside of your mortgage or any of those

[15:29] loans then what we want to do is we want

[15:30] to go to three and three is three months

[15:33] expenses now at three months expenses

[15:36] this is the phase that you want to get

[15:38] to at a minimum it is there to protect

[15:41] you against anything in life that

[15:43] especially as you are starting to build

[15:45] wealth three months get you part of the

[15:48] way safe and this is going to be

[15:50] something that a lot of people will

[15:51] argue with me with I don't think three

[15:54] months is enough to just stop at I don't

[15:56] ever think it will be and I'll explain

[15:57] exactly why uh later but 3 months will

[16:00] help give you some flexibility here

[16:02] it'll give you way more flexibility in

[16:03] life than one month will and it'll start

[16:06] to be something that you can really

[16:07] really take to start to build wealth now

[16:10] once you hit this three-month level I

[16:12] also want you to start investing this is

[16:14] the point in time where you definitely

[16:15] want to start investing so that you can

[16:17] get your money to start working for you

[16:18] in compounding really really important

[16:21] now I know how difficult this can be it

[16:23] is not an easy thing to just save up 3

[16:25] months of expenses it's a lot easier to

[16:27] say than it is to put in to practice

[16:29] because if you're spending 5 10 15 grand

[16:31] a month all of a sudden now you have to

[16:33] say 15 30$

[16:36] 45,000 in cash before you can start to

[16:39] get to the next level but you got to

[16:40] have three months of expenses in place

[16:42] otherwise you could go backwards

[16:44] financially and I don't want that for

[16:46] you so we got to make sure that we are

[16:48] getting to the three-month point in time

[16:50] then we start investing and once you hit

[16:52] this level when you start investing you

[16:54] can start investing in a your HSA is

[16:56] what I would look at first B your Roth

[16:58] IRA or your raw 401K as well those post

[17:01] tax accounts because they grow taxfree

[17:02] and I absolutely love them for that and

[17:04] then your 401k or your pre-tax accounts

[17:06] also so those three are the ones that I

[17:08] would look at past once you get to this

[17:10] level and if you are have questions

[17:11] about those we have tons of episodes on

[17:14] the HSA the Roth IRA the 401K so we

[17:17] won't dive into that on this episode but

[17:19] this is something I think that you

[17:20] definitely want to make sure that you

[17:21] are looking into more so as you start to

[17:24] develop this and so you want to start

[17:26] working towards the next phase but also

[17:28] you I want you start investing because

[17:29] you can't wait too long before you start

[17:31] to allow your money to compound you

[17:32] can't get those years back in the Roth

[17:33] IRA or the 401K so I really want you to

[17:36] get those dollars working at the

[17:38] three-month level before you actually

[17:39] complete your final emergency fund which

[17:41] we're going to be talking about here as

[17:42] we go through this so let's review here

[17:45] each section I'm going to be reviewing

[17:47] you want to get your one month of

[17:50] emergency fund expenses saved up boom

[17:52] that is the first thing then you want to

[17:54] pay off high interest debt once you have

[17:56] that one month saved up in addition to

[17:58] continuing you know small amounts of

[18:00] money towards your emergency fund to

[18:02] continue to build towards 3 months once

[18:04] you hit 3 months of expenses in your

[18:06] emergency fund now we are going to be

[18:08] putting dollars and allocating dollars

[18:09] towards Investments you can go 50/50 if

[18:11] you want you're trying to think through

[18:13] percentages I want you to take a

[18:15] percentage of your income and start to

[18:16] invest those dollars in these accounts

[18:18] and I want you to plan it out and make

[18:20] sure you understand that you are now

[18:21] working towards that retirement number

[18:23] so put as much money as you possibly can

[18:26] working towards that retirement number

[18:27] while still continuously saving and

[18:28] trying to grow this emergency fund over

[18:30] time now listen I'm saying this you know

[18:33] put some in this emergency fund put some

[18:35] in this investment account and a lot of

[18:36] you are probably looking at yourselves

[18:37] or thinking to yourselves oh that's a

[18:39] lot of money I got to be saving up here

[18:41] well I want you to allocate percentages

[18:43] so when you think about you know how

[18:44] much you should be saving when I say you

[18:46] need to be saving 20% of your income I

[18:48] mean emergency funded Investments that's

[18:50] the two things I'm talking about when I

[18:51] say that and so I want you as a minimum

[18:53] to be saving 20% of your income and

[18:55] moving to 25 30% if you can and then

[18:58] growing it from there as your income

[19:00] starts to increase the beautiful thing

[19:02] about increasing your income is that all

[19:03] of a sudden you can increase the amount

[19:05] that you're putting towards these things

[19:06] and you're going to hit those goals so

[19:07] much faster that's why we increase our

[19:09] income in order to put them towards

[19:10] wealth building activities and putting

[19:12] them towards our money value so between

[19:14] those two things you can allocate some

[19:16] of these dollars you know if you need to

[19:17] put 15% towards Investments and 5%

[19:20] towards your emergency fund after you

[19:21] hit three months because that's the the

[19:23] executive decision that you as a family

[19:24] or you as your individual is are making

[19:27] that is more power to you but but making

[19:29] sure you're contributing to each one so

[19:30] that you can start to grow each one is

[19:32] going to be really really important and

[19:34] you also got to make sure that you run

[19:36] your Investments through something like

[19:38] a compound interest calculator there's a

[19:39] bunch of them out there and those are

[19:41] going to help tell you hey by the time I

[19:43] if I just keep contributing this amount

[19:44] of money this 15% or 20% whatever it is

[19:47] if I continue to contribute this amount

[19:50] I will have X amount of dollars by the

[19:52] time I want to retire you need to run

[19:53] those simulations if you want a full

[19:55] episode on that please email me uh and I

[19:57] will do that to show you exactly how

[19:59] that works but this is something where

[20:01] as you start to progress you want to

[20:02] make sure that you're planning this out

[20:05] now let's get to the next level which is

[20:06] six all right so the next level is going

[20:09] to be six months of expenses now getting

[20:11] to six months of expenses Savings in

[20:14] your savings account in your high yield

[20:15] savings account at that is the goal

[20:18] that's goals right there is we want to

[20:20] get to six months of expenses I do not

[20:22] think whatsoever that saving up 3 months

[20:24] of expenses will protect you against

[20:25] life in the long run and I'm going to

[20:27] explain exactly why in an example here

[20:30] because I think it's really important

[20:31] for a lot of people to think through

[20:32] this because most people actually

[20:33] haven't thought through the entire

[20:35] process of why it's three or six months

[20:37] of expenses most Financial gurus out

[20:39] there will say three months is fine

[20:41] that's the minimum that's how much you

[20:42] can have I could not agree less I do not

[20:47] agree with that notion whatsoever what I

[20:49] think is that I'm going to give you an

[20:51] example and this is why I think this way

[20:54] so let's say for example that you are

[20:55] laid off unexpectedly from a job life

[20:58] just Smacks you right smack in the face

[21:00] and now you're trying to think through

[21:02] well I got to take a couple of days to

[21:04] assess what I need to do next sometimes

[21:06] that choice is super easy you go through

[21:08] this process and you're like hey I know

[21:09] exactly what I want to do next in fact

[21:11] I've been networking for a long time let

[21:12] me go talk to a few individuals that

[21:14] I've been networking with but other

[21:15] times what to do next after you get laid

[21:17] off is a much more difficult process do

[21:19] you want to make a career change do you

[21:21] need to go out and start finding and

[21:23] sending out your resumes you never

[21:24] thought this day was coming and so now

[21:26] you have to think through what am I

[21:27] going to do next so you start to begin

[21:30] to polish off your resume and you start

[21:32] to update your LinkedIn profile and do

[21:34] whatever else you need to be doing to

[21:35] start your job hunt and before you know

[21:38] it you're doing all these things you're

[21:39] updating these forms you're just getting

[21:41] over the fact that you just got laid off

[21:42] unexpectedly all of a sudden like 10

[21:45] days have passed and so now you're

[21:46] sitting at this point in time where

[21:48] you're doing this all this setup work

[21:50] but in addition 10 days have passed

[21:52] since you've been laid off and you are

[21:54] starting to have to utilize some of your

[21:56] emergency fund cash now maybe you got

[21:57] lucky maybe you got a severance maybe

[21:59] they gave you some cash when you left

[22:01] that is absolutely amazing that is not

[22:03] guaranteed and we need to focus on the

[22:04] things that we can control and so you've

[22:06] started to get everything set up but you

[22:08] really haven't made any progress towards

[22:10] actually finding your next place of

[22:13] employment and so it's really important

[22:15] to do that now if you're someone like a

[22:16] server or you're a bartender and you're

[22:18] in the or you know one of those

[22:19] Industries it may be a little easier to

[22:21] get back up on your feet and go find

[22:22] another job because there's a lot of

[22:23] those jobs available out there but if

[22:25] you're someone who's working in the

[22:26] corporate world or maybe you're an

[22:27] executive or you're a high level person

[22:29] this is going to take some time to find

[22:31] your next job because you got to find

[22:32] the right fit for your lifestyle and so

[22:34] now 10 days of pass a little Panic might

[22:37] have set in and so you start your job

[22:38] search and now let's do a little math

[22:40] here let's say for example you send out

[22:42] One resume and one cover letter you know

[22:45] every single hour so that's about five

[22:47] to eight that you're sending out every

[22:48] single day cover letters take some time

[22:50] to get right and so it's really not

[22:52] realistic to be sending out a ton of

[22:53] different resumés unless you are just

[22:55] tweaking some of them now ai is helping

[22:57] with a lot of people write their cover

[22:58] letters where they can do it much faster

[22:59] so I would look into that if you are

[23:01] doing a high volume of sending out some

[23:03] of these resumés but you need to spend

[23:04] the rest of your day trying to network

[23:06] as well so you need to spend some time

[23:08] applying for jobs and some time

[23:09] networking for some of these jobs and so

[23:11] one of the things I really want you to

[23:12] think about here is yeah you can try to

[23:15] apply to a small pool but if you haven't

[23:16] done the networking work up front you're

[23:18] going to have to cast a wide net first

[23:20] and then once you land your next job

[23:22] then you're going to be able to go back

[23:23] and start to really tailor down your

[23:25] pool for the next time if this ever

[23:26] happened again and so you're starting to

[23:28] send your resumés out you're spending

[23:30] time networking with people and this

[23:31] process alone can take months before you

[23:33] actually land an interview and the

[23:35] higher level the job the longer this can

[23:37] actually take all while not getting paid

[23:39] and so we have all this time coming and

[23:42] we have not gotten paid yet and now we

[23:44] could be months into this without

[23:46] getting paid do you think three months

[23:48] is still enough let's keep going once

[23:49] you start to do this then you land

[23:51] interviews now interviews are not the

[23:53] thing where you walk into somebody's

[23:54] office anymore and you have an interview

[23:56] for 10 minutes unless you have a

[23:57] non-corporate job corporate jobs for the

[23:59] most part are going to take you a couple

[24:01] rounds of interviews before you even get

[24:03] through the entire process and then you

[24:04] could get to the end and have no idea

[24:06] you didn't get there once you start

[24:07] Landing interviews you have to go

[24:09] through multiple rounds of interviews

[24:10] and this can take days this can take

[24:12] weeks and then all while prepping and

[24:14] sending out more resumés and trying to

[24:16] network network in case this doesn't

[24:18] land because it would be a Fool's errand

[24:20] to go through an entire interview

[24:21] process and not continue to send out

[24:23] your resume other places just crossing

[24:25] your fingers and hoping you land this

[24:26] job because that would take even more

[24:28] time this is a Race Against Time a lot

[24:30] of times but also trying to find the

[24:32] right fit and so you want to make sure

[24:34] that you are working this process over

[24:36] and over and over again and this is why

[24:40] once this process goes through here

[24:42] maybe you land an interview and you

[24:44] finally land your job four to five to

[24:46] six months in this is why I'm not

[24:47] comfortable with three months because it

[24:49] can put you in a very risky situation

[24:53] once you start to go through interview

[24:55] process and try to land your next job

[24:56] now you be may be in an industry with

[24:58] Fair very high demand we've talked about

[24:59] this in the past if you know your

[25:01] industry is in very high demand what

[25:02] happens when that demand shifts in one

[25:04] day that demand can shift overnight and

[25:07] so I think you just need that added

[25:08] protection so that you can have the

[25:10] additional months in place in order to

[25:13] figure out what the heck you're going to

[25:14] do next so it's very important to think

[25:15] that through what if you get laid off in

[25:17] a recession what if your car breaks down

[25:19] while you're job hunting or additional

[25:20] emergencies in life happen while you're

[25:22] job hunting and trying to live off this

[25:24] money 3 months is just not enough I do

[25:26] not believe it's enough I don't think

[25:28] you can get there because there are so

[25:29] many things that we have no control over

[25:31] what we do have control over is having

[25:33] cash on hand in fact my emergency fund

[25:35] is much more than 6 months now and I'll

[25:37] even talk more about that here in a

[25:38] second because that's my next point is

[25:40] so you get from one month you get to

[25:41] three month you get to six months okay

[25:43] six months is the ultimate goal but now

[25:45] it's going to come down to each

[25:46] individual once you achieve six months

[25:48] and Beyond you're going to save until

[25:50] you're slightly uncomfortable as one of

[25:51] my favorite quotes because you want to

[25:53] figure out how much cash do I need on

[25:55] hand to really be able to have my my

[25:58] Swan number now what is the swan number

[26:01] the swan number is a number that I like

[26:03] to call the Sleep well at night number

[26:06] and I want you to think about this I

[26:07] want you to ingrain this in your brain

[26:09] what is my Swan number is it six months

[26:11] expenses is it eight months expenses to

[26:14] have a little extra cushion is it 9

[26:16] months expenses is it 10 months expenses

[26:19] you need to figure out what you want to

[26:20] save going forward and most people who

[26:22] want to drisk their lives have more cash

[26:25] on hand RIT Sati who is the author of I

[26:27] will teach you to be Rich he keeps at

[26:29] least one year of expenses on hand at

[26:31] all times Alex horos who's an individual

[26:33] who teaches a bunch of people about

[26:35] business he keeps millions and millions

[26:36] of dollars on hand just because that's

[26:38] what makes them comfortable and so for a

[26:39] lot of people just making sure you

[26:42] figure out what your number is is going

[26:43] to be really really important your

[26:45] finances I want you to hear this your

[26:47] finances don't have to be perfectly

[26:49] optimized for growth they don't they

[26:51] don't have to be perfectly optimized for

[26:53] what the math said you want them to be

[26:55] optimized to reduce your stress and anx

[26:58] xiety that's what you want them

[26:59] optimized for you need to save until you

[27:01] can sleep well at night which is why we

[27:03] call it the swan number sleep well at

[27:06] night now here's one other thing to to

[27:08] notice as well is that your Swan number

[27:10] may change over time so for example I

[27:12] was much more comfortable with less cash

[27:13] on hand uh before I was married once I

[27:16] got married I wanted more cash on hand

[27:18] because now I have two people to take

[27:19] care of once I had kids I wanted more

[27:21] cash on hand because now I have three

[27:23] people to take take care of now four

[27:24] people to take care of and now we have

[27:26] another one on the way so five people to

[27:27] take care care of and so my number

[27:29] changes all the time you may start at 6

[27:31] months and all all of a sudden as life

[27:33] progresses you want 16 months doesn't

[27:35] matter where you want to be this is

[27:36] really important to make sure that you

[27:38] just understand that this number can

[27:40] change over time and it is okay for that

[27:42] goalpost to continue to change figure

[27:43] out what your Swan number is and go from

[27:46] there I want everybody to remember that

[27:47] next we're going to dive into what you

[27:49] should do if you are self-employed or an

[27:50] entrepreneur and then we're also going

[27:52] to talk about as you approach retirement

[27:54] all right so next we're going to be

[27:54] talking about a business owner and if

[27:56] you are a business owner you know for a

[27:58] fact that sometimes you need some cash

[28:00] on hand to take care of business matters

[28:02] and so if you're self-employed or you're

[28:04] an entrepreneur you need to have even

[28:06] more money saved than just a regular

[28:07] person why because if something happens

[28:09] in your business you want that business

[28:10] to continue you need to have cash on

[28:13] hand in order to take care of situations

[28:15] and so the more cash you have saved up

[28:18] the longer you can keep a business alive

[28:20] especially if it's struggling and so 9

[28:22] months is the minimum for me for people

[28:24] who are self-employed or if you are an

[28:26] entrepreneur you need to at least have 9

[28:28] n months of cash on hand to take care of

[28:29] a lot of different situations and also

[28:31] if you're a business owner it may take

[28:32] you a little longer to find a job if you

[28:34] decide you're going to shut down the

[28:35] business and you're going to go out and

[28:37] find a job and so making sure you at

[28:38] least have nine months at minimum saved

[28:42] would be a the amount that I would have

[28:44] to open a business and be the amount I

[28:46] would have if I'm a business owner and I

[28:48] didn't think through this already and so

[28:50] making sure you have nine months at a

[28:51] minimum I would much rather have 12

[28:53] months or more um but at least nine

[28:55] months at a minimum because I know how

[28:56] difficult that can be to save up now if

[28:58] you're a person who is going to start a

[28:59] business I want you to have 9 months

[29:01] saved up before you start that business

[29:03] and I want you to make sure that that

[29:04] business is already earning money before

[29:06] you just jump into this next thing do

[29:09] not start a business and go directly

[29:11] into that business without it earning

[29:13] any income taking care of your income in

[29:16] fact I would not ever jump into a

[29:17] business until it is matching the amount

[29:20] of money that I am making at my day job

[29:22] and or you can see a direct correlation

[29:25] between you not having enough time

[29:27] because of your day job and the amount

[29:28] of money that you can be making those

[29:30] are the only two ways that I would do

[29:31] this and I like to think of this as

[29:33] walking into the ocean okay maybe your

[29:35] goal is to go underwater into the ocean

[29:38] but you want to progressively which is

[29:40] you going full-time but you want to

[29:42] progressively start walking into the

[29:43] ocean slowly over time okay because as

[29:47] you start to walk into the ocean now you

[29:48] get your feet in then you get your knees

[29:50] in then you get your waist in then you

[29:52] slowly get your stomach and you start to

[29:53] progress towards actually diving into

[29:56] your new business endeavor and your

[29:58] income is the representation of the

[30:00] water and so as you start to get closer

[30:02] and closer to diving fully in all of a

[30:04] sudden your income is also progressing

[30:06] with you and this makes a very safe way

[30:09] to actually get into that water and and

[30:11] Go full on out so I would have nine

[30:12] months of expenses and I would make sure

[30:13] the the business is making enough money

[30:15] to cover my expenses uh month in and

[30:17] month out before I even take that dive

[30:19] Warren Buffett has a quote for investors

[30:21] who did not do their due diligence and

[30:22] there's a lot of things that you know

[30:23] that go into this quote but he said when

[30:25] the tide rolls back we see who's

[30:27] swimming naked and it is one of my

[30:29] favorite quotes because if you do not

[30:31] have that Financial Foundation you don't

[30:33] have cash saved on hand that is that

[30:35] quote also coincides with something like

[30:37] that and that's why I love using that

[30:38] water analogy take your time and leave

[30:40] working in your business full-time when

[30:42] you're 100% ready you got to be safe

[30:43] when it comes to that all right and then

[30:45] now let's talk about retirees for

[30:46] retirees I am of the opinion that

[30:48] retirees should have at least one year

[30:50] of cash on hand but really two to three

[30:52] years of cash on hand now a lot of you

[30:53] may be saying to yourself that is way

[30:55] too much cash on hand and sure if you

[30:58] are someone who hates having cash and it

[30:59] drives you crazy and it actually

[31:01] stresses you out to have too much cash

[31:02] on hand I don't really have an issue

[31:04] with you having a little less cash on

[31:06] hand when you're retired but for me

[31:07] personally I'm going to have multi-

[31:09] years of cash on hand here's why

[31:11] especially if interest rates are like

[31:13] you know 5% right now I have no problem

[31:15] doing that whatsoever but here's the

[31:16] real reason why is because say for

[31:19] example we have a year like the Great

[31:20] Recession you go through retirement and

[31:22] you're three months into retirement and

[31:24] you're playing golf or pickle ball or

[31:26] you've going full on into your hobbies

[31:28] you're fishing every single day you're

[31:29] having a grand old time you're traveling

[31:32] with your spouse you're going all over

[31:33] the world and you're doing all this fun

[31:34] stuff let's say 3 months into your

[31:36] retirement though all of the sudden an

[31:38] event happens like the Great Recession

[31:39] and the Great Recession happens and

[31:41] takes your Investments and wipes them

[31:43] down to 50% of their value now as we

[31:46] know as long-term investors these

[31:47] investments will go back up in value

[31:49] they will correct themselves at least

[31:50] historically they have and so we weren't

[31:52] going to really stress out about that as

[31:53] much but we will if we just retired and

[31:56] so one of the things we want to think

[31:57] through is well if I have a couple of

[31:58] years cash on hand I can utilize that

[32:01] cash while my investments are knocked

[32:02] down to live off of and then as my

[32:06] investments start to recover over the

[32:07] next couple of years then I'll be able

[32:09] to start to draw down on my investments

[32:11] so for me it is just a way to drisk my

[32:15] retirement and ensure that my retirement

[32:18] is going to be successful because you

[32:19] can increase the probability of success

[32:22] by having more cash on hand now it is

[32:23] very difficult to save multi-e of cash

[32:25] on hand especially if you started

[32:27] investing and you're just trying to get

[32:28] to retirement to have enough money I get

[32:30] it so that's not something I think every

[32:32] single person should have but having at

[32:34] least one year of cash on hand I think

[32:35] is pretty important so that you can

[32:37] protect your retirement going forward in

[32:38] the future and then also just thinking

[32:40] through some of the additional bonuses

[32:42] that you can have now I would utilize

[32:44] something like Social Security as a

[32:45] forced additional cash on hand so I

[32:48] would save enough to cover my living

[32:49] expenses in my investment accounts

[32:51] Social Security is going to be that

[32:53] added bonus that's going to allow you to

[32:54] have extra cash on hand and then you

[32:56] also have your emergency fund that to me

[32:58] is a fortified retirement that gives you

[33:00] three different angles for you to have

[33:02] income coming in so that you can protect

[33:03] your finances in retirement that's the

[33:05] number one thing you want to do is just

[33:06] drisk everything and protect your

[33:08] finances and so retirees I would rather

[33:11] have uh way more cash on hand I would

[33:13] not take the risk of having you know

[33:15] just a couple of months uh uh in your

[33:17] emergency fund so I think you need to

[33:18] have one year or more but you also need

[33:20] to make sure you don't have too much

[33:21] cash on hand so for a lot of people like

[33:23] I was alluding to earlier if it stresses

[33:25] you out you definitely want to make sure

[33:26] that you do not have too much cash on

[33:28] hand why because your money can work way

[33:29] harder than you can in Investments and

[33:31] so to optimize the amount of money that

[33:33] your money can make you don't want to

[33:34] have too much of cash on hand I

[33:36] increased my emergency fund amounts past

[33:38] six months once I started to really hit

[33:41] my investment account numbers and so

[33:43] once I started to allocate enough money

[33:45] towards my investment accounts my income

[33:46] started to increase then I would take my

[33:48] extra income and start to beef up my

[33:50] emergency fund more see how this cycle

[33:51] is starting to work and so I don't want

[33:53] you to have too much cash on hand early

[33:55] on like you're saving for a year

[33:56] emergency fund before you even start to

[33:58] invest your dollars no I want you start

[33:59] to investing at that three-month level

[34:02] and then after that as you start to

[34:04] progress then you'll be able to uh see a

[34:06] big big difference there then you'll be

[34:08] able to see a big big difference and you

[34:09] can increase your income take those

[34:11] extra dollars put them towards the

[34:12] emergency fund because your your money

[34:13] can work way harder than you can you

[34:15] need to a also outpace inflation if

[34:17] inflation is going to erode away at your

[34:19] money if you're not investing your

[34:20] dollars and you will never get ahead so

[34:22] you have to make sure that you're

[34:23] investing to to outpace inflation and

[34:26] then lastly you'll never be able to hire

[34:28] without investing so you have to invest

[34:29] those dollars over time now where do you

[34:32] save this money number one is a high

[34:34] yield savings account always put your

[34:35] emergency fund if you don't know where

[34:37] in a high yield savings account is the

[34:38] easiest place I would recommend anybody

[34:40] go look I keep mine an ally uh there's a

[34:42] bunch of great ones out there though

[34:43] there's some with higher interest rates

[34:45] betterment uh all of those I'm not

[34:46] associated with any of them so um

[34:49] there's a bunch of great high yield

[34:50] savings count just pick one that is you

[34:52] know reputable uh that you like you like

[34:54] some of the benefits in there and

[34:55] utilize that one number two is you can

[34:57] use something like a CD ladder and we've

[34:58] done episodes in the past on a CD ladder

[35:01] if you see that CDs have way higher

[35:03] interest rates than a high yield savings

[35:04] account and it's worth it for you to do

[35:06] a CD ladder then you can go do that or

[35:08] you can also utilize something like a

[35:10] lowcost bond fund um for a portion of

[35:13] your emergency fund I would not really

[35:14] make it that complicated though honestly

[35:16] I would just use the high yield savings

[35:17] account that's the route that I like uh

[35:19] and I like to simplify simplify simplify

[35:22] as much as possible if you wonder why I

[35:23] use Ally the only reason why I use Ally

[35:25] is because you can actually budget and

[35:27] what they call savings buckets inside of

[35:29] Ally and so when you're in there you can

[35:32] utilize this this budging system

[35:34] essentially that says hey this portion

[35:35] of my emergency fund is Sav for car

[35:36] repairs this portion is Sav for home

[35:38] repairs and you could do some cool stuff

[35:40] like that so that's why I use it but

[35:41] there's other other uh bank accounts out

[35:43] there that can also do that now too so

[35:45] um check out the one that you think

[35:47] might work best all right so the last

[35:49] section here I want to talk through is

[35:51] how to maintain that emergency fund and

[35:53] this is one that I think most people

[35:54] don't talk about but I know for a fact

[35:57] and I've talk to people who have an

[35:59] issue with this and how they don't know

[36:01] exactly how to maintain or how to refund

[36:04] their emergency fund and so we're going

[36:05] to talk about that today and that's why

[36:06] the 136 method was actually developed it

[36:08] also helps you refund your emergency

[36:10] fund as well um so that you can get back

[36:12] to exactly where you wanted to go and so

[36:14] you may have never been told this before

[36:16] or it might be something that you just

[36:18] like to have this prize on the Shelf but

[36:19] your emergency fund is there to be used

[36:21] and I want you to use your emergency

[36:23] fund for actual emergencies what a lot

[36:25] of people do is they like to look at

[36:27] their emergency fund like a you know a

[36:29] trophy on the mantle and they they don't

[36:31] really like to actually use their

[36:32] emergency fund and they try to find

[36:34] other ways to take care of emergencies

[36:35] instead of using the money as it was

[36:37] intended and so this is something I

[36:40] think that is very important for all of

[36:42] us to really really look at uh as we

[36:44] start to progress is that you need to

[36:46] make sure that you're using your

[36:47] emergency fund and so you know when

[36:49] emergencies come up your car breaks down

[36:51] you don't have the cash on hand already

[36:52] then you can use it now if you're

[36:54] someone who is really trying to build it

[36:55] up to like that one year mark and you

[36:57] want to earmark a couple of extra then I

[36:59] would just add additional cash to it and

[37:02] so that you can you know if emergencies

[37:04] come up then you have cash on hand to to

[37:06] actually have that going but don't keep

[37:07] your emergency fund looking pretty on

[37:09] the mantle use it when you need it now

[37:11] the 136 method was developed and the

[37:14] reason why I like to talk about this for

[37:16] refunding it as well so say for example

[37:17] you need to use your emergency funding

[37:18] you had a big big uh emergency come up

[37:21] maybe you had a big medical bill that

[37:22] wiped out you know one or two months of

[37:24] your emergency fund I would follow the

[37:26] same process meaning I would get to one

[37:28] month refunded in your emergency fund

[37:31] okay and if you need to write refund

[37:32] three months then I would go one month

[37:35] refunded I would try to get back to

[37:36] three months again before I started to

[37:39] invest so I take my investing dollars

[37:40] and attack towards getting to three

[37:42] months get it built back up and then you

[37:44] can start investing again and so I just

[37:46] continue following the same process and

[37:48] I would follow that same process if

[37:50] you're really trying to build it towards

[37:51] 12 months or even larger amounts um you

[37:54] can also follow that same process but

[37:55] it's meant to be utilized over and over

[37:58] and over again in this cycle over and

[38:00] over and over again as you start to want

[38:01] to build it more and more and more so as

[38:04] you want to start to build this

[38:05] emergency fund more and more you want to

[38:07] just continue the cycle over and over

[38:09] again for the 136 method really

[38:11] important to to think through this

[38:14] process so that you can get to the point

[38:15] in time where you are achieving your

[38:17] financial goals and listen emergency

[38:19] fund is there for you to use it's there

[38:22] to protect you against life and it is

[38:23] one of the most important things in

[38:25] personal finance that you need to

[38:26] understand cannot thank you guys enough

[38:29] for listening to this episode I truly

[38:31] hope you got value out of this episode

[38:33] we are trying as hard as we possibly can

[38:35] to bring you as much value as possible

[38:37] so that you can build generational

[38:38] wealth for you and your family and be

[38:40] that first person in your family to have

[38:42] that generational wealth cannot thank

[38:44] you guys enough for listening to this

[38:45] episode I truly appreciate each and

[38:47] every single one of you and we will see

[38:49] you on the next episode thank you again