Emergency Fund aka Rainy Day Fund aka Your MoneyMoat
The idea here is simple. It’s taking what was traditionally known as an emergency fund or a rainy day fund and re-thinking of it as your financial moat. Get your plan here!
The most important inputs to get correct and keep updated are: “Monthly Essential Expenses” and “# of Months of Cushion You Want”
The idea here isn’t necessarily to just protect you for those unexpected, major expenses, although that can definitely be a part of it. It’s also to give you more flexibility in your life. In case you find yourself unemployed for whatever reason and haven’t quite figured out a way to replace your income, you’ll know that you have 6 Months of your Essential Expenses handled, without having to tap into your Retirement or Investments!
It’s an incredibly powerful concept. It’s usually recommended that you keep this in a out of reach, safe and liquid account. There are many ways you can achieve that, but keeping it in your regular bank savings account where you might be getting 0.01% Interest might not be the best place for it. There are high yield savings accounts like this one from GS Bank that can safely earn you 1.2% interest — it’s not much, but way better than 0.01% interest.
Just think about how your decisions might change when you know you have 6 months or more of cushion. You would be far more empowered to take a leap and start the business of your dreams, or find another job if you are unhappy. This isn’t a spending account and isn’t your startup capital — this is a fund for your essential life expenses.
Of course if you already have your emergency fund amount in an investment account, then you might need to just think about your MoneyMoat conceptually. Only thing to remember is that you want it to be somewhat liquid.
When you get to a point in your life where you are ready to tap into your fund, you should immediately reset your Goals to make sure you re-fund your emergency fund to the new target amount!
If you have any insights to share or questions, you can always email: email@example.com