“By failing to prepare, you are preparing to fail”

Benjamin Franklin

Before we dive in, let’s revisit the idea of financial independence. This may or may not be a phrase you are familiar with, but it is one that is a consistent theme in our blog. Financial independence means something different for everyone, but for my wife and me, it means having the flexibility to do what we want when we want. It means having our money work for us so we don’t have to trade our time for money our whole lives. It means freeing up our time to spend it more with family and less in the business world. Regardless of what financial independence means to you, it is going to take work. A lot of it. It is going to take learning, preparation, and dedication. But it helps to get a jump start of managing your money properly. This is why we’ve categorized four essential funds to help people create financial safety nets, build wealth, and enjoy life along the way.

So without further delay, here are the four essential funds you should start right now, in order of priority and importance!

Emergency Fund

If you don’t already have an emergency fund, this should be your first and only priority until you have at least $1,000 saved up for a rainy day. Just last year, life hit us pretty hard. We just incurred a bunch of  unexpected hospital bills relating to our daughter’s birth, then the catalytic converter in my car needed to be replaced, shortly thereafter my clutch started going out, and on top of that all, I had graduate tuition to pay for the upcoming semester. That was a lot of money in a short amount of time. Luckily, we had an emergency fund that helped soften the blow quite a bit.

Start making a conscious effort to put money aside until you build up that $1,000, then continue until that $1,000 becomes three months worth of living expenses. Life comes at you fast, but if you are prepared, it won’t be the end of the world.

Check out Casey’s article on 5 Reasons Why You Need an Emergency Fund Now for more tips and suggestions on building your emergency fund!

Investment Fund

Whenever I think of investing, I think of the parable of the talents found in Book of Matthew in the New Testament. The parable talks about a man who gave a certain amount of talents to his servants according to their abilities. To one he gave five, to another two, and to the last he gave just one. The man then traveled away for a season and came back to see what his servants had done with these talents. The servants who had received five and two talents both doubled their lots, but the servant who only had one remained with one. Why? Because he was scared and buried his talents.

Now, this can be interpreted many ways, but when it comes to investing, I view the talents as the money these servants had earned. They didn’t all earn equally, but they all had equal opportunities to double what they had earned. Although the servant with one talent could’ve done the same, he let his fears get the best of him and he buried his money away where it did him no good. I think it’s easy for us to have these same fears. “What if the stock market crashes again?” “What if I make a bad investment?” These are all legitimate concerns, but we would be foolish to only put our money in places where it is literally losing value due to inflation, like a savings account.  Or even worse, just live paycheck-to-paycheck because we we are too enticed by the newest gadgets that we forget to invest for the future.

Don’t just work for money, let your money work for you! Getting started with investing isn’t that hard and it makes all the difference. I love the thrill of investing and watching my money grow. Sometimes it loses value too, but that’s ok because the market always goes up. Wherever you are at now, start putting aside money from every paycheck. Eventually, work up to be able to put 15-20% into investments. You’ll be glad you did!

Check out this article on 6 Principles for Successful Investing and this article for why Vanguard is a great option to get started! And keep an eye out for our future posts about how to pick winning investments!

Fun Fund

Now that we have addressed the two most important funds for building financial flexibility and wealth, let’s focus on what we all actually want to put our money towards: DOING FUN STUFF!! While we are definitely proponents of making wise financial decisions and saving money, don’t forget that life is short. Have fun along the way! Set aside money from each paycheck to be able to go and do fun things you enjoy, that way you aren’t taking money away from other aspects of your finances to pursue our hobbies.

If your hobbies are inexpensive, all the power to you! I recently listened to a podcast where this individual talked about how all of his hobbies required an upfront investment that wasn’t necessarily cheap, but allowed him to have loads of free fun once that investment was made. Camping, mountain biking, photography, paddleboarding, and many other things are all great examples of this! And having a fun fund to utilize to make these investments can make all the difference in your path to becoming financially independent.

Vacation Fund

If you follow us, you know that we all love to travel. Sometimes I feel like I work to fund my travels. So building off the fun fund, don’t forget to plan and save for vacations! Vacationing is something that has really strengthened our marriage. We love to get out and experience the world. It seems like the minute we get back from a vacation, we are immediately wanting to figure out where to go next. One thing we are going to work on going forward is planning further ahead so we can more adequately save for these trips over longer periods of time. If I know we are going to have a trip in a year that costs $1,200, then I know that I need to save $100 a month until that time so that no money will come from any form of savings we have.

If traveling far away from home isn’t your thing or it’s not in the cards with your current financial situation, don’t forget the option of discovering your own backyard!

I fully plan on retiring some day. I plan on traveling the world with my wife once that’s the case. But we often talk about how life is short and you never know what your circumstances are going to be when, or even if, you get to that age. We want to have fun and experience the world along the way! That is why this is an essential fund we continually work on now!

Let’s recap! First, work on your emergency fund. The last thing you want is a car fix or an emergency hospital visit to break your bank account and leave you desperate. Once you feel comfortable with your emergency fund, start building your investment fund and work up to saving 15-20% and investing it somewhere where your money will work for you. Don’t stop investing in this fund until you are retired! All along the way of becoming financially independent, don’t forget to have fun and vacation! Set aside money to be able to do this without hurting your other financial goals.

With these funds in place, you will be living life and enjoying the journey to financial independence! Do you have any other funds you would add to this list? Let us know in the comments below.

Here are 5 reasons to have an emergency fund:

1. You or your spouse (or both) lose a job. This seems to be the most popular reason to have an emergency fund. Sometimes losing a job is out of your control . Other times you are in a bad job and need to get out. Whatever the reason, having an emergency fund will make this less of a crisis. A little over a year ago I lost my job and was without work for 3 months. Luckily our emergency fund covered our expenses and once I got another job, we were able to build it back up again.

2. You may get sick or be unable to work. Sickness or disability can be an unfortunate reality for some people. A friend of mine who worked in construction broke his arm and was unable to work until his arm healed, leaving him without pay. If he would have had an emergency fund, things would have been much easier to deal with.
3. Your car breaks down. Cars can be the best or they can be the worst. No matter what car you drive, your car is always at risk of breaking down at some point. Depending on what work needs to be done, it can cost you a lot of money. Just this past year, fellow Fund Family member, Jacob, had two car repairs that cost him over $2,000 total in the span of a few short months. This came around the same time he had a baby and had to pay for graduate tuition for the new semester. Things can pile up quick, and he was very grateful for his emergency fund when that all happened.
4. Your AC or heating goes out. This applies more to homeowners. As I’m writing this, the temperature outside is 14 degrees, not having heat in this weather would be miserable.
5. You want piece of mind. This may be the most important reason. Having extra money set aside is always a good feeling. It isn’t fun when you have to use that money, but it’s better than having to borrow it from someone else.   

There are plenty of other emergencies that can come up. Hopefully these 5 give you a good idea of how unpredictable life can be and why you should be prepared.

How much to put in your emergency fund

The exact dollar amount will vary from person to person. We calculated our emergency fund based on our budgeted monthly expenses.  I usually make a very simple spreadsheet that outlines all of our expenses for a month.

Our total expenses in January came out to be $1,579 dollars. A safe number to calculate would be to take the total expenses and multiply it by 3.  

However, this number can be a little deceiving. If a true emergency were to happen (lose my job, get sick, etc.), then certain expenses would be cut. For example, we wouldn’t have a budgeted amount of $50 for eating out. This number would go straight to $0.

The way we calculated our 3 month emergency fund number was by adding up all the expenses of things we couldn’t live without (rent, groceries, gas, etc.). This number ended up being a bit more reasonable.

This number will continue to grow as our expenses go up throughout the years. We plan on adding around $1,000 every year or so, depending on our situation. When emergencies do happen, we use the money, but quickly put money back into the fund to be ready for the next emergency.

Where to put your emergency fund

Because emergencies are unpredictable, you want your money somewhere where you can access it quickly. Tara and I put ours in a Chase savings account which is linked to our regular checking account. This makes the funds almost immediately available to us if we were to need it. This should not be treated as an investment account, so do not be worried about getting a low rate of return on it.

Make sure that you aren’t getting charged fees in the account where you decide to store your emergency fund. Hopefully your money stays in the account for a long time, so having fees wouldn’t be ideal.

There are plenty of reasons to have an emergency fund. Our reasons may be different from yours. Hopefully you don’t ever have to use your emergency fund, but chances are, you will. It’s best to be prepared for when those times come. It will make life a little less stressful. It did for us.

Have you had a time when your emergency fund came in handy? Please comment below with any questions or email us at thefundfamily@gmail.com. We would love for you to share your experiences with us!