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Why Do I Need A Life Happens Account?

by Rob Bertman, CFA, CFP® in Goals, Money Strategy, Wealth building
May 2, 2016

Summary

You may have heard of an “emergency fund”. Basically, it’s money set aside to be prepared in case something urgent and unexpected comes up that you need to pay for with cash so that doesn’t create another financial burden in your life.

The problem is that an “emergency fund is focused on the bad stuff in life.  But, what if you want to take advantage of an opportunity that comes up that could be good for you or fun for you? That’s why I call this my Life Happens Account.

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Cars break down, houses need fixing, sometimes we have medical events or job uncertainty. But we also have experiences or opportunities that come up that we want to take advantage of. Like your friend having an extra ticket to a concert you really want to go to or going to a friend’s bachelor or bachelorette party.  How about having money set aside in case you have an idea to start a business? Well, you have money set aside for that too.

The Life Happens Account. This is money set aside, specifically for those things that are unknown that can happen to anybody.

Financial stress, uncertainty, insecurity may be the #1 stress in people’s lives.  This Life Happens Account is the quintessential piece reduce this stress, because if something comes up unexpectedly, you have money set aside to use for this today.

I’ll give you an example of how it can help reduce stress. Now just last week, I’m driving along and there’s a red light coming up and also a car in front of me. I go to brake, but my foot goes all the way to the floor. The brakes stopped working! I downshift it then push on the brakes really hard and I stop before I hit the car in front of me and before I go into the intersection. It was pretty scary.

Since we have a Life Happens Account, I got over the shock, dropped the car of at the mechanic, and went back to work, I wasn’t thinking, “Oh gosh! I don’t know how much this is going to cost me, and I don’t have the money!” That’s because I planned and we have this Life Happens Account available for situations like this.  That financial stress would have carried with me to work and with my family.

Some people say to put aside 3-6 months of expenses, but the important thing is to start funding this account.   Everyone has their own tolerance for risk and their own tolerance for safety, so decide what’s right for you. It can be $1,000, or 3, 6, or even 12 months of expenses. whether it’s 3 months, whether it’s 6 months whether it’s 12 months of expenses that you feel you need to save, start thinking about putting money towards that goal.

Without that financial stress, you’ll be able to live a better life, a more secure life which means you can have deeper relationships, you’ll have higher confidence, and you’ll eventually reach that point of peak life enjoyment.

I really really appreciate you being here with me. If you’ve liked these blogs and want them delivered right to your inbox, go ahead and sign up below. You won’t have to search around to find this and you’ll be the first one to get these as they come out.

I love your feedback. A lot of the topics for these videos come as a result of conversations with you or ideas from you. This is all about helping you to get to where you want to be financially and I can only do that when you share.

So please share. Please connect. Please sign up to get these on a regular basis with your email address below. And thanks so much for taking the time. I really really value it.

I thank you, and we’ll talk to you soon.

Rob Bertman
Founder & CEO
Money With Impact

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www.moneywithimpact.com

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Transcript

Hi there, I’m Rob Bertman, Founder of Money With Impact. Today we’re going to talk about how to plan and how to prepare for those unexpected expenses that come up and why it’s so important.

You may have heard this referred to this as an “emergency fund”. Basically, it’s money set aside to be prepared in case something urgent and unexpected comes up that you need to pay for with cash so that doesn’t create another financial burden in your life.

But, this focuses on a lot of the bad stuff in life.  What if you want to take advantage of an opportunity that comes up that could be good for you or fun for you? That’s why I call this my Life Happens Account.  Yes, cars break down, houses need fixing, sometimes we have medical events we have to deal with. Sometimes we have financial uncertainty with our jobs.

But we also have experiences or opportunities that come up that we want to take advantage of. Let’s say that your friend has an extra ticket to a concert you really want to go to.  Well, you can use this Life Happens Account to pay for that too. Or let’s say that you hear a friend is getting married and you want to go to the bachelor or bachelorette party, you have money set aside to pay for that as well. Or let’s say you have an idea to start a business and you need some money to get it rolling. Well, you have money set aside for that too.

The Life Happens Account. This is money set aside, specifically for those things that are unknown that can happen to anybody.

Now the other important thing about this is that, as we know, financial stress, financial uncertainty, financial insecurity is a huge issue. In fact, it’s one of the #1 stresses in people’s lives. In fact, it may be #1.

Now, when I think about this, I think about how it stops us from becoming the best version of ourselves. And, in fact, if you think about Maslow’s Hierarchy or Needs… If you’re not familiar with it, it’s ok, I’m a little bit of a psychology nerd. But essentially, it’s a pyramid shape, and we have to have all these needs met in order to get to the peak of it.  When we get to this peak, it’s call “self-actualisation”. It’s our highest self. We’re the most creative, the most productive, you see the forest through the trees, you’re just operating on all cylinders.

But with this theory, other needs need to be met before we can get there. At the very bottom, of course it’s going to be the things that we need to live, air, food, water, right? But just the 2nd level above that is security and safety. We need to feel secure, not only with our livelihood but with our finances too. That’s where that lives in this hierarchy.

The next highest level is relationships, above that is self-esteem and confidence. Then once all those needs are met, we can become the best version of ourselves. But a lot of people are stuck down because they don’t have financial security and they don’t have financial safety.

So this Life Happens Account is the quintessential piece to make sure that if something comes up unexpectedly that you don’t have to stress about it as much because you have money set aside to use for this today if you needed to. Ok? The Life Happens Account.

I’ll give you an example of how it can help reduce stress. Now just last week, I have a car that’s 11 years old that I bought it 5 years ago used. I’m driving along and there’s a red light coming up and also a car in front of me. So I go to brake, and my foot goes all the way to the floor. The brakes stopped working! So of course I’m freaking out, but I realize that although it’s an automatic car, I can downshift it to first gear to brake the car using that method. Then I push on the brakes really hard and I stop before I hit the car in front of me and before I go into the intersection. It was pretty scary.

Now besides it being scary, there’s a financial cost to fixing a car, right? We need to deal with our brakes obviously. So, now I’m not worried about that. I got the car to the auto shop and I went home and I worked. I wasn’t thinking, “Oh gosh! I don’t know how much this is going to cost me, and I don’t have the money!” That’s because I planned and we have this Life Happens Account available for situations like this.

Taking it to another level, when I told my wife about it, she wasn’t like, “Oh, Rob how are we going to come up with the money to pay for this?” Her first question was, “Wow that sounds scary! Are you ok?” So, it reduces stress in my life. It reduces stress in my wife’s life. It just made life so much easier and it made our relationship stay strong. Because if something happens to somebody that hurts them or that makes them scared, the last question they want…the first question they want to be asked is, “How are you doing?” Not, “How are we going to pay for this?”

That’s what this Life Happens Account can do. So it’s really really important to set this up.

Now, when people talk about emergency funds they say, ok, put aside 3-6 months of expenses. For some people, that might be a big task. People who spend a lot of money on a monthly basis, they’re going to need this account to be bigger, and for people who have a more modest lifestyle, they don’t need to save as much money because they can cover their lower expenses.

The important thing is to start thinking about funding this account. I’ll go back to using a pyramid analogy here. Let’s say you have some buckets set up. You have a top bucket and you have all these other buckets stacked underneath it in a pyramid shape.  This emergency fund bucket is on top, and the other buckets below represent financial goals, things you want to accomplish in your financial life. And what happens is, we pour water into the top pitcher until it fills to the top. And once it fills up to the top, the water starts to flow into these other goals.

And that’s sort of the way I look at this Life Happens Account.  So the Life Happens Account is the very top bucket. When money comes in, I make sure that thing is fully funded so that I have that security to live the life I want to live and if something comes up, I can deal with it.

And then, after filling up that bucket, the water trickles down to fulfill the other goals. Now if something does happen, my car breaks down, I owe $700, I take that bucket off the top. I don’t have to go sifting through the pyramid and making it unstable by taking money from these other places. I just simply take the top bucket off pour some of it out, put it back up, and when money starts to come back in, I fill that bucket up first to the top, and then I worry about the other stuff. That’s the analogy that I like to think about.

Everyone has their own tolerance for risk and their own tolerance for safety, but in order to move up to become the highest version of ourselves, it’s important to take care of the uncertainty and what happens if something happens to me today.

So, whether it’s $1,000, whether it’s 3 months, whether it’s 6 months whether it’s 12 months of expenses that you feel you need to save, start thinking about putting money towards that goal. And once that is filled up to the point you want, start thinking about your other financial goals too, and you’ll feel much more secure. You’ll be able to live a better life, a more secure life which means you can have deeper relationships, you’ll have higher confidence, and you’ll eventually reach that point of peak productivity because your immediate needs are taken care of as you’re working towards these other goals.

Because if you have this set up, an expense like a car happening won’t derail you from accomplishing your other goals because you have money set aside to do that. So it’s really really important to set this up.

So take the time to think about, as we’ve talked about before this low value spending, cutting out that low value spending and start funneling money back into this Life Happens Account, and it’s going to make you feel just so much more secure about your finances, about if something comes up unexpected good or bad that you can deal with it and that’s critically important.

So, thanks for taking the time. I really really appreciate you being here with me. If you’ve liked these blogs, the past couple videos, if you like this video, and you want these delivered to you rather than having to search for them, if you want them delivered right to your inbox, go ahead and sign up below. All it takes is your first name, your email address, and you’re on the list. You’re the first one to get these as they come out.

And I greatly appreciate your support. Please continue to connect with me. Give me your feedback. A lot of the topics for these videos come as a result of conversations with you or ideas from you. Because, this is all about helping you to get to where you want to be financially and I can only do that when you share.

So please share. Please connect. Please sign up to get these on a regular basis with your email address below. And thanks so much for taking the time. I really really value it.

I thank you, and we’ll talk to you soon.

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www.moneywithimpact.com