The F.U.N.D. Method For Building & Managing Your Emergency Fund

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. What would happen if an unexpected emergency hit you tomorrow? Could you cover it without derailing your finances? Could you cover it without going into debt? If the thought of a medical bill, a job loss, or a major car repair sends a wave of panic through you, then this episode's for you. Because in this episode, I'm gonna show you how to build an emergency fund using my simple fund framework so you'll never have to worry about a life unexpected event if it hits again. Because it will. That's just the way it is. Life happens.

All right, welcome to this episode. We're going to talk about the emergency fund. You hear all the time this idea of an emergency fund having three to six months. Although we'll talk about why I think that that's not enough. But how do you do it? Why is it important? What's the best way to build it? What's the best way to manage it and make it happen? So in this episode, I'm going to break it down for you. I'm going to walk you through my fund framework that is designed to help you build it, grow, and fund it step by step. So it's part of my wealth priority ladder, which is in chapter 12 of my book, where we recommend saving nine to 18 months worth of living expenses, depending on your age, stage, and circumstance. Because this is about your safety. This is about protecting what you're building. This. And I get it. There'll be criticisms and trolls that are going to say, oh, my God, that's a lot of cash on the sidelines. Got to remember that every dollar that comes into your hands has a job description. Some of those dollars are to pay expenses like Ren or mortgage or food or clothing. Some of those dollars are to invest for your future. And some of those dollars are to protect your future. And that's what this is. So stick with me and learn why it's so critical and how to get started. All right, so let's just start with that. Let's start with why an emergency fund? Why a peace of mind fund is so important? Because without that, then we don't really necessarily put anything to it. So the first is this. Life happens. Life happens. And we need to be prepared. It will throw surprises your way. You will get a left turn. You will have a car that breaks down. You will have a home repair. I literally, I was doing a live stream, and as I come off the live stream, my wife's coming home with the dogs on a walk. And she says, honey, and. And it wasn't one of those good, you know, honeys. I look at her and I go, what's up? She says, we have a lake in the front yard. I go, what do you mean? She says, it's water's bubbling up in between the pavers on the driveway. I go, what? And the water main broke. Our main water main broke because of a tree root that had cracked it, okay? You don't know it, but life happens. Now, if we didn't have our financial position where we are, if we didn't have a peace of mind fund, the only way to pay for that would have been to go into debt or to sell something or to do something that erodes our wealth journey. The reason we have it and put an emergency fund or a peace of mind fund in place is to make sure that we are prepared when life happens. Not if, but when, because it will happen. All right? And so that's. That's the first reason I have it. The second reason is that financial stress and the impact of it on our lives is immense. There are studies that show that 40% of Americans can't handle a $400 emergency. That with cash, they just don't happen. Have it. And. And what happens if those numbers end up instead of 400 at 4000, what happens to the financial stress on you as an individual? What happens to your relationship? The stress on your relationship? What happens to your mental health? What happens to your state of mind? The reason we do this, and it's why I call it a peace of mind fund versus an emergency fund, is I want you to have peace of mind. I want you to be okay. Everything I do. If you read my book Building your money machine, and if you haven't. Yeah, should. It was USA Today bestseller number four in business. Here's the thing. If you are not prepared for something like this, you, you. You are in a situation where the only way that you can navigate it is through debt, which is going to inordinately stress you out even further. So we need to Start to build it. We have something called the wealth priority ladder in the book that helps you get here. The second, the, the third piece here is this.

Debt is not the answer because some people will say well I've got a home equity line or I have a credit card.

But debt will stress you out. No different than the expense will stress, stress you out. And debt makes it more expensive. Without a peace of mind, without an emergency fund, people will turn to debt, you'll turn to debt. Now some people, I even had someone say I'm a borrow money from my 401k. No, it has to be a last resort if you're going to ever do something like that. And I've done content around borrowing money from a 401k. Why it's a bad idea and what are the pitfalls of doing it. So, so debt might be a quick fix, but it is going to have a long drawn out pain because of the interest, the payments and it compounds it is an eroder of your wealth. The reason we put this in in front of you is that you don't end up in the ditch. You don't end up in a situation where, where you have a problem. And then number four is that we need it because it protects our investments. Okay? And if I have emergency fund in place as part of my financial journey, my plan and we, when we build plans, we build it in place. If I have that in place along with my investments, along with, with some of the things that are going on, I don't have to dip into my investments to take care of an emergency that might come along because I've already prepared for it. Because here's the challenge. The emergency doesn't happen necessarily at the top of the market where your investments are high. The emergency happen whenever and if you believe in Murphy's law, they'll happen when the market's down. And so if you happen to have to cash out an investment because you have no emergency fund when the market's down, you end up using up the investment, taking a loss on the investment. And now you don't have the money working harder for you. And so it is important for you to be able to protect your investing going forward so you can allow it to grow and do the work it's meant to do. The job is it is supposed to do to give you the financial freedom you deserve. Those are the reasons that we do this. And so we don't, don't play that game. So how do we, how do we make this, this happen? Well, we walk through Something that I call the fund framework. There's four primary steps that we're gonna take you through to build this step. One in the, in the fund framework is this. Okay, one, the F is really about find your essentials. This, this idea of a peace of mind fund, an emergency fund, is meant to cover your essentials, to cover your survival, to cover and allow your life to continue to run smoothly. So essentials are things like your rent or your mortgage, your utilities, your groceries, your insurance, your medical, your minimum debt payments, your baseline expenses, not, not the frills, not the luxuries, but to make sure that your survival is covered. So the first step is to spend some time. And if you're building your money machine, if you're following the processes that I teach, you already know what this number is. But if you don't, it's time to figure it out. What are the essential costs, the survival, the needs that you have to cover? Go through your bank accounts, go through your credit card statements, go through all of it so you know where your money's going to on a monthly basis, what that looks like, and get a clear idea of your survival, spending the stuff that is absolutely essential for you. So once you have that, you can move to step two. Step two is understand your target. How much do you need? Okay, how much do you need? Now? I. I look at it and say nine to 18 months. Now, some will say three to six months. I say nine to 18 months. And here is why. I don't think it is enough to have three to six months now, because when something happens, it could take months for you to just get on your feet again if you lose a job and then what happens? Now you need another couple of months to carry you. So I'm saying that you, you got to be nine months or beyond. Now, dogmatically, I don't look at it from, oh, it's got to be nine months, or it's got to be 10 months, or it's got to Be 18 months. These are guidelines. And what impacts the guidelines are. This is that your age, stage, and circumstances in life will tell you whether you should be closer to the nine months, are closer to the 18 months. And here's what I mean by this. You might be in a marriage where you have no kids and you have two incomes and you have a mortgage, but your expenses could be covered by a single income. Well, in that situation, you don't need 18 months. You might be able to get away with nine months.

And do it from that perspective. But let's Say that you have a family, you have one or two kids, your spouse, he or she doesn't matter, stays home with the kids. You have a single income stream that's supporting the whole household. Well, now, nine months may not be enough because you have so many people dependent on you. You might be pushing towards 12 or 18 months to make that happen, to build it. Or alternatively, maybe you're not young, but you're in your 60s and starting to slow down and stop work. So now you know that the income that's coming in is going to decline, you might need a little more than nine months of liquidity just to sustain yourself. Because during those years you also might have more unplanned medical expenses and things like that. So I tell you the nine to 18 months as a guidepost for you to decide and determine where you want to land in there to make sure that it covers you based on your facts and circumstances to make that happen. So if you figured out, if you start to look at this, the math behind it is pretty straightforward that you look at it and say, well, if, if for instance, I, you know, I have $3,000 in monthly expenses. One thing I know for certain, you're probably not living on the west coast or the east coast, but if $3,000 are your essential expenses, then multiply it by nine, you know, that's 20, you know, whatever $27,000 that we need to have as a nine month target, or if it's 18, it's $54,000. So somewhere between 27 and 40 and 54,000 is, is where you, where you need to land. And so the key in this step is to pick your target number based upon your unique circumstances to set as the goal in this step to make it happen. All right, that leads to step three, which is nurture your fund. You have to start somewhere that now that you know how much you need, it's a matter of funding it. You, what I will tell people to do is to jump start their, their emergency fund is I say let's get you a comfort fund in place first. And that comfort fund is typically where, what, what we say is $1,500 or one month's expenses. And the way we jump started is I'll, I'll literally tell them to go look around their house and see if there's anything that you might be able to sell on Facebook, Marketplace or something to bring in an additional thousand dollars or fifteen hundred dollars to just jump start it to cover you as you're trying to build this. The full Emergency fund. Or maybe there's a project that you can do at work for additional extra pay, a side gig, gig that you can take on to make that happen. But what we really want to do is make sure that we jump start it so we've got a lump sum to work from now. We set ourselves up in a automated plan that saves it. Now let me be really clear. I want, I want your emergency fund, your piece of mind fund to sit in a high yield savings account. That is, that is something that is 100% fully liquid, 100% no fees, 100% insured. It is your, your bucket for your safety. So we take no risks with it. We don't put it in the market, we don't lock it up. It's fully liquid. It is, it is not meant to give you a ton of investment growth. It is meant to give you a ton of peace of mind. So what I do is, as we're building this is we have an automated allocation of my income on a monthly basis or on a, on a semi monthly basis, whatever it is, to automatically fund it until we get to that nine to 18 months, whatever that target number is, but is automatic. You don't have to think about it. And it should be happening every time you have income coming in. So at some point you'll get to that, your target number to make it happen. It is important to nurture this and make this a priority upfront. Okay? Otherwise what happens is you're trying to do investing, you're trying to do all these other things, but you don't have a foundation to build from. And if something happens, you cannot sustain it, the building will come tumbling down. You do not build a skyscraper, you do not build a home without having an unshakable foundation first. And the basis of that unshakable foundation is this fund. We have to make it happen to do that in this way. That leads me to this final step of a fund, or is D is designate and protect. Okay, what do I mean by this? This is about keeping the emergency fund safe and accessible. And I already said this, I want you to put it in a high yield savings account. Doesn't matter where, where you put it. As long as it's 100 liquid, 100 insured and there are no fees, you'll earn some interest on it. Right now as a filming, it's anywhere between 4 and a half and 5.2%. The rates may be coming down as they decrease rates. But remember, this money isn't about you making a ton of money. On it. This money is about you having liquidity to take care of your family and yourself if something happens. So I do not want it in your everyday checking account. I do not want it where you can see it. I do not want temptation to get you to spend it. Oh, it's just sitting there. It's just sitting there because that temptation will then go, I'll rebuild it later. No, it is for an emergency. And the definition of emergency is an unexpected expense.

And that's what we're talking about now. An unexpected expense is not an unexpected desire because you saw it on Instagram and say, I want. I want that. That. That new computer, I want that new appliance, I want that new drone. That's not what the emergency fund's for. So it is something to be protected and only used for emergencies. All right? So that's the fund. That is the fund framework to do that. Now, what happens if. If we don't have this in place? I think that there's a couple of things that happen if you do not put this in place and make this a priority up front. And the first is this. I think that you end up in a debt spiral. You have the possibility to end up in a debt spiral because if an unexpected expense comes in and you don't have the cash to pay for it, where are you going to go? You're going to go to credit cards, you're going to go to borrowing. You might even go to payday loans, which are horrible.

Hey, that, that's that. You might even borrow from your. Or cash out your 401k. Don't do it. Don't do it. All right, so the first piece is that if we don't have it, it could lead to a debt spiral. The second piece, if we don't have it, it could completely derail your goals, your financial goals, okay? Your plan. Because you'll be forced. You may be forced to sell things that you didn't anticipate selling. Selling investments when maybe they're not at. At a high, they're at a low. Selling out of a retirement account prematurely, getting penalties and taxes and lost growth and all the things that come along with it, it can completely derail you. Remember, this is about protection, okay? And then the last thing I think is really important is there is this huge emotional toll on you when it comes to this. Living without a net. Living without a safety net becomes extremely stressful. There's a constant level of worry because, you know, if something happens, you are not in a position to take care of it. There is something about having that peace of mind fund, that emergency fund in place that you know that, hey, if the water main breaks, I'm good. If we have an unplanned medical expense or a car repair, we're good.

That's the purpose of this. Okay? So by following the fund framework, you're not just saving money. You're securing and saving your financial future from allowing something unplanned to absolutely destroy it. You're building the net that will protect you, your loved ones and your life from any surprises that are coming about. This is about you having the freedom to pursue your goals. So let's recap. Fund is find your essentials first, understand your target second, nurture your fund consistently and designate and protect it forever. All right? That's what's going on. So the question is, do you have it? Are you working on it? And if not, what is stopping you? Because if you don't start today, when are you going to start? Your financial future and the security of it is dependent on this. So I hope that you found this of value. I hope that you found this helpful, and I hope that you'll put yourself on the path to build the emergency fund. Follow the wealth priority ladder. In my book, follow, follow the processes because it will take you to the path to financial freedom. It will put you in control. It is about educating you, it's about equipping you, and it is about empowering you to master your money, eliminate financial stress, and live a life by choice. Financial freedom is your birthright. Let's go claim. All right. It may not be easy, but just because it's difficult doesn't make it impossible. I give you the simple processes, the simple frameworks to make it a reality in your life. Let's do it together. All right. Can't wait to see on another episode or on the road to financial freedom. And until I get a chance to see you again, always, always, always strive to live a life.

Thank you for listening to the affluent entrepreneurship with me, your host, Mel Abraham. If you want to achieve financially 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.

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