I've been saying this for over a decade. People still don't get it.

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience Live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Why is it that most people are still unprepared for life's financial emergencies even though they know the importance of savings? Listen, if you've ever felt anxious about a financial crisis completely derailing your goals or if you've ever heard someone say, oh, just get three months, three to six months worth of savings, well, this episode is going to change the way you think about your financial safety net. In fact, I'm going to reveal to you why you need 9 to 18 months in your emergency fund, in your peace of mind fund, as I call it, how to protect your wealth and what could happen if you don't.

For over a decade I've been saying this one thing and yet it's still overlooked. Listen, your emergency fund isn't just a suggestion. It is your financial safety net. It is the thing that's gonna protect your wealth. And no, three to six months just isn't enough. Listen, this came home to roost for me years ago. It was decades ago, but I literally my partnership with my partners when I had a CPA firm broke up, it fell apart. I got pushed out. I had no clients, no client backlog. I had no cash flow. I just purchased a home. So I was over $300,000 in debt at a house payment to make. I had a business to build and I was a single full time dad. If I didn't have a, an emergency fund or a peace of mind fund as I, as I call it, I would have been destroyed. I would have gone deep into debt, the house would have been in foreclosure or I would have, I would have had to sell the house and, and Lord knows where I would be today. See, it isn't a luxury to have an emergency fund. It is a necessity to have that piece of my fund. It's why in the wealth priority ladder in chapter 12 of my book building your money machine, I talk about it in detail, why and what. So I want to give you some things here and say why An Emergency, what is it? Well, to define it simply an emergency fund, a peace of mind fund is money you set aside specifically to take care of life's unexpected events. It could be a job loss, it could be a partnership breakup, could be medical emergencies, it could be home repairs. We just had the main waterline break here. It could be a family crisis that you're trying to navigate. This fund, this is the mistake that, one of the mistakes that people make, this money that you're putting aside you isn't about building wealth, rather it's about protecting the wealth you're building. It's about giving you financial stability.

On the wealth that you have and making sure that what you've worked so hard to achieve doesn't get taken away. Now here's, here's the thing, then people will ask me the question, well.

Where should I keep my emergency fund? Because shouldn't I invest it, then the money's not working for me. And, and if I invest, it'll grow, grow faster? Well, yeah, it could, but here's, here's the way I look at this. Your emergency fund, like I said, is not for growth, it's for security. So I think there's a couple places that you can go ahead and put it away. But the key element here is that I need the money to be safe. I need to be it to be liquid. In other words, I need to be able to get access to it and I needed to be insured, no fees. So I'm going to give you a couple of places that I think you can put it that will make sense. The first is a high yield savings account. Now in, as we're filming this, a high yield savings account can generate between 4 and a half and 5.2% is what the rates are right now. So it's not, it's not gangbusters. You're not going to get wealthy off of it, but you're not going to really lose too much off of it. And remember, the reason you put this money aside is to take care of those unplanned things. There's unexpected emergencies. This is about safety. So you don't have to go into debt, you don't have to sell anything, you don't have to cash out a 401k, you don't have to take a 401k loan, you don't have to get it personal, you don't have to do any of that. So first place to put it, if you wanted to put it somewhere, is high yield savings Account. Make sure it's 100% liquid. It is 100% fee, you know, fee free. You're not paying any Feees, and it's 100% insured. Okay? The second place I would put it is in a money market account. Okay? Again, it's liquid, it's not tied up, and there are no fees in it. You're not going to make a ton of money. This isn't about making money. And I'm going to say that over and over again, because I think this is a, this is a challenge for many people because I, I hear, I can hear it now, the trolls and go, well, cash is trash. And you, you can't make money. You're losing money because of inflation. Every dollar that comes into your life has a job. Some of those dollars are to pay for your expenses. Some of those dollars are to build a future. Some of those dollars are to keep you safe. And as long as everything does their job based on a master plan, which you should be working from, then it's doing what it's supposed to do. Okay? Because a lot of people will say, well, I, I'm just going to invest it. All right, here's the problem. Okay? Here's the problem. Murphy's law says I'm going to put that money into the, into the stock market. And yes, the stock market, or it's going to be invested is liquid. I can get out anytime. But the problem is, is that if you need the money for an emergency, because an emergency by definition is unplanned and the market happens to be down, guess what? Not only do you have less money for the emergency, but you lock in the losses. This, this is something that, that I think we really need to get clear on and be okay with. Okay? Now let's go to something else, because I know a lot of people will say to three to six months. I'm going to tell you that three to six months just isn't enough. And I have been saying this for decades now. I will also say that I think that the pandemic demonstrated this, that we were shut down and it took more than three to six months for people to get things dialed in. Now, at the same time, I think there was a whole lot of people that, that got caught. You know, look, we can't plan for pandemics. We have no idea that these things are going to happen. But it happened. Our whole world basically shut down, and we were, we were not prepared for it. But the thing was that if you didn't have good money management skills going into the pandemic, the Pandemic just elevated the stress, the strain on your financial world. In other words, if you were overspending, you had a lot of debt, destructive debt, and, and you're living check to check, and you had no emergency fund. You got hammered with the pandemic. So the emergency fund isn't going to solve all those problems. You actually still need to build the skills, proper money management, property, wealth creation. Follow the process in building your money machine. The things that I'm teaching you here on this channel and in my show, to get, get it right, this is just one element of it. But here's the thing. Three to six months, just not enough. Think about me. I got pushed out, my partnership broke up. I had to start getting a business rolling. That literally took me 9 months to 12 months to get that thing rolling to a point where I felt good that I was going to keep the, the, the house, the roof over our head. As a single dad, what happens if you end up in a situation like I did medically, where I got diagnosed with cancer and now I may not be able to work or I need to focus on health or a family situation? 3 to 6 months is not enough. Okay, the reality is this, though. 40%. 40% of Americans say that they could not cover a $400 emergency without going into debt. That's a problem. 40%. I don't want you to be statistic. I want you to make sure that you have this dialed in. And the fact is, even from a job standpoint, it can take 5, 6, 7 months to find a new job, to find the right job. And during economic downturns, it's even worse. So what I'm trying to do is make sure that you don't get buried, your family doesn't get buried, your financial legacy doesn't get buried. When something unexpected happens, I look at it and say 9 to 18 months. Now why 9 to 18 months? Here's why. Now, I, I'm going to be really clear. I don't look at nine to 18 months. Dogmatically. They are guidelines. And some people are good with nine months. Some might need the 18 months. And I'll give you kind of the way to look at this. This is to give you time to deal with the stress, to deal with the shock, to deal with whatever it is that's going on and get back on the, on your feet. It's going to take you two to three months just to, to get your head straight. Then it's going to take you two to three months to start moving. It's going to take you another two to three months to, to get some results. At least. This is where nine months comes from. This is where nine to 18 months come from. Now, what decides whether you're nine months, 18 months, 12 months, 14 months, whatever it is, it's your facts, your circumstances, your age and stage of life. Let's look at it this way. If you're young, you're single, you don't have a lot of bills and no kids and no one's really depending on you, nine months is plenty. Okay, but what happens if you are a married couple, you have two kids and one of you is stay at home and the other one is, is the sole income earner, you got a family of four. Depending on your income, if there is a problem with your ability to earn or you lose a job or anything like that, you got a family that's dependent on it. We got to start pushing that up to 12, 13, 14, 15 months, or maybe you're older, maybe you're, you're 60, 63, 64, you know, and you're thinking of stopping working, which means that your income is going to stop flowing. And let's face it, as you get older, medical emergencies and things like that can come into play. You might be at the 18 months. So what I look at the nine to 18 months is as boundaries and guidelines, not dogmatic numbers, but really just looking at, and saying, where should I land realistically and reasonably, given my age, stage and circumstances in my life? And so, so this is the way I would look at it. Now again, I said, you're gonna, you're gonna get people that are gonna say, oh, having cashes on the side is, is, is no good. You shouldn't have cash because you're losing money. It should all be invested. The whole point of this is safety and protection. It is not growth. It's not building wealth. It's not about any of that. It's not about getting you rich. It's about keeping you rich. Just keep, about keeping you on that path to do it that way. So let them do what they're going to do. You do it the right way, you do it the way that's been proven and has worked for decades in up markets, in down markets to make it happen. All right, so what are the consequences of not doing this? Because if you throw caution to the wind and you don't do this, here's what happens. Real life consequences. When you need the money, the only place to go is to either sell stuff or go into debt. And if you're going to put it on credit cards. Especially in the environment that we're in now. You're, you're staring at 25, 29, 20% that will destroy your wealth. So real life consequences, high interest debt, real life consequences. Dipping into retirement savings. You might sit back and say I'm going to take a 401k loan out. That is a last ditch effort. I mean this is the last thing I ever want you to do. Because when you take a 401k loan out, there's a whole host of problems that come about that real quickly. 1, Many 401ks don't allow you to make any more contributions until you pay that loan back. Two, you stop getting the match. Three, you stop getting the growth. Four, if you lose your job, you got 60 days to pay it back or it's a taxable distribution and now you pay tax and penalty on it. You, it's a horrible thing to do. Or instead of taking loans, some people say I'm just going to cash it out. No, you pay tax and penalties on it. You lose 50% of it if you're not careful and you lose the growth.

Of what you would have had if you left it in. Emergency fund avoids that. Also I think real consequences, you lose financial freedom, you lose the ability to make smart decisions because the stress, the, the, the, the angst around the emergency and not having the cushion to breathe is going to force you to make a decision that's suboptimal. It's going to force you to maybe take a job that's not the best, to take an offer that's not going to, not going to be long term the best for you, but it's because it's going to give you money immediately. So that's the way I look at it. I think that the world has changed. There's economic volatility, you've got recessions, you got layoffs, you even have pandemics. We see what's going on. Inflation has, has been up, it's come back down, but prices and cost of living are still higher. So there is an impact to this. More importantly though, the emotions of knowing that you have money set aside and you can sit in peace, that you've got things taken care of if you need it, is huge because I can't tell you enough. There's 70, 72% of the people say that they have stress around money and 22% of them say it's extreme stress. Y', all, there's no reason for that. We need to solve It. And this is one of the ways to do it. So what do you do? There's a couple of steps I want you to take, and the first is to start with the basics. The first is to start calculating what your monthly essentials are. What is it that you actually need? This is your rent, your mortgage, your groceries, your medical, your utilities, the survival stuff. The bare minimums that you need to have in place so you know the number that you're going after. Okay? Aim for three months to start. I just want you to start there, but don't stop there. The goal is to hit the nine to 18 months, depending on your circumstances. But I gotta get you in the game. It's not an overnight process. I get it. It's a process that's gonna take some time, but you gotta get in the game to get it done. We gotta start putting money away to get it done. One of the ways to make it easier is to just automate it. If you know that you're gonna put $100 a month away towards that emergency fund, building that emergency fund, have it automatically transfer to the high yield savings account, to the money market account. Out of sight, out of mind. Without thinking, without effort, without friction. It just gets done. And over time, it will build. And then I'd love for you to reassess it regularly. That means probably every six months at least. Just see where you're at, see where your expenses are, see where your. Your emergency fund is, see where you're at and. And reassess. See if there's new risks, other things that might change it. Maybe the expenses have gone down. Maybe the expenses have gone up, you had a new baby, something. Just look at it. Okay, so with that, I got to. I got to urge you to go out and make sure that you have the right emergency fund in place. It's not three to six months. It's something more like nine to 18 months, depending on your circumstances. Follow the steps that I've given you here. Start putting money away. Give yourself the peace of mind that is there when you know you have the liquidity to take care of you, your family, and your legacy, and that your wealth is protected by doing the right things with the money that you have. All right, so if you haven't started building, now's the time to start building. Now's the time to get in the game. Because remember, having cash on the side isn't about. About, oh, building wealth. It's about making sure you're safe, having the money there to take care of your family, your legacy and how to make sure you have the opportunity to take care of, take advantage of opportunities as they come up. Same time. So it's not about financial freedom, about financial protection. I hope that you found this helpful. I hope you're going to take it seriously and start looking at this through the eyes of nine to 18 months instead of three to six months. Because I tell you, I have been saying this for decades and still a lot of people are getting it wrong. I don't want that to be you. All right, if I. I hope to see you on the road to financial freedom. I hope to see you soaring really soon. And if I can help you on this journey, please let me know. Make sure that you're subscribed and you're following the show. And do me a favor, share it and leave a review. Let's. Let's get this message out in the world, because here's what I believe. I believe that financial freedom is your birthright. We just got to go claim it. And that's what I'm here to do. All right? Each and every episode, each and every show, and every time I step on a stage, as well as my book, building your Money Machine, that's what we're here to do until I get a chance to see you again in the next one. Always, always strive to live a life that I lose you.

Thank you for listening to the Affluent Entrepreneur show with your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building youg Money Machine, where we help you learn how to master your money, eliminate financial stress, and learn live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright and I want to help each and every one of you claim it. Thanks so much.