When disaster struck in March, I know that personally and professionally, I had a long look at my financial situation and assessed how were we placed to ride out the ‘unprecedented’ storm 🙂
Now, three months in and coming out of lock down, the basics of what saved a lot of my clients was simple: their savings. I know it sounds like a cliché; but having that cash reserve for a rainy day (or a pandemic) works.
And the thing is, it’s never too late to get on top of this. Like a lot of people I know, we are avid followers of Scott Pape’s ‘Barefoot Investor’. We have our fire extinguisher fund for a situation like this – a situation where so many people have been adversely impacted.
The premise is simple – start saving and put aside at least 3 months of your total monthly expenses. Looking at this now and reading around the topic, I think realistically in a situation such as COVID 19, 5 to 6 months $ is closer to the point.
There is a plethora of benefits from having a cash buffer for you personally or your business. It relieves the pressure mentally. You know you can survive with nothing happening for the next x months (depending on what you have salted away). It provides leeway to be able to pivot and adapt to a rapidly changing landscape. It buys you time.
I’ve been looking at this with a client recently. And I know, it’s easier said than done. But we all learned that we can dial down the spending dramatically. Keeping some of those spending cuts in your habits will provide the spare cash that can be moved to a separate savings account. And once you start to watch it accumulate, you’ll be addicted to making it grow! Hitting the minimum 3 month target doesn’t happen overnight and can take many months. But it’s worth it. And that’s the other thing it buys you – peace of mind
