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[The following is a partial transcript of this episode of The Scott Alan Turner Show. Listen to the full episode to hear this story, listener questions, money hacks, and inspiring stories of people that are changing their financial lives. Subscribe to the free podcast on iTunes or Google Play]
In This Episode / Listener Questions
- Travel hack to save on food (Valeria)
- What is the best time to buy a used car (Ariana)
- Converting 401(k) to a Roth while still employed (Josh)
- We’re slowing down our debt payoff to prepare for a new baby (Ann)
- Is a 401(k), Roth 403(b) or 457 better to put bonds in (Matt)
- How much you know (or don’t know) about long-term care, Social Security, IRAs, investments, and life insurance?
- What is the best option between mutual funds and index funds (Matt)
- Should I slow down my retirement savings to build my emergency fund (Mike, Marina Bay Richmond CA)
- These are not the cookies you’re looking for.
- Can you pass this retirement income quiz?
Half of people would end up living in a van down by the bridge because of a financial disaster. Here’s why you should think about your future.
I visited Dr. Dreamy last week, who diagnosed me with bronchitis. What I left out of the story was, he said ‘try to take it easy’. Then he says, “but I know how it is, I had the same thing a while back for three weeks, and I didn’t take it easy either”.
As you and I know, when you build good habits of doing something, you want to keep doing them. Even if circumstances say otherwise. I wanted to work out.
Friday, I check the weather. Cloudy. Every hour for the rest of the day – cloudy. I’m still sick, but I wanted to go for a walk. I get outside, and it’s ever so slightly sprinkling. But I go for it. Because the weather said it’s just going to be cloudy, right?
I’m over a mile away from my house, and it starts pouring. And I find a tiny tree to stand under. I call up Mr. Wizard in the Matrix – my wife Katie. “Mr. Wizard, I need an exit. Get me outta here, now. I’m getting wet.”
Mr. Wizard says “I’m at Walmart buying groceries. I can’t come get you.”
Well, sink or swim. Except my choices were stand there and continue to get soaked, or run.
Think of your favorite workouts, or any workout. Gasping for air. Now add bronchitis to that. I ran home, one mile, in the pouring rain, having bronchitis.
Because of my rainy day incident, I thought listening about rainy day funds would be fun today. And I’ve got something new for you in a moment.
For some listeners this is the first time every hearing about this thing. Everyone has a first time, I get that. Emergency fund – what’s that? Life insurance – what’s that? Disability insurance – what’s that? Emergency fund – 3–6 months of living expenses in cash to help weather life’s big storms.
Think of it this way – in all my years of doing the show, I’ve never had one listener say having money when the really needed it was a bad idea. Curse you Turner and all this cash I have!
Imagine you’re heading out the front door for a walk. A picnic. A trip to Krispy Kreme.
- There are people who will quit even before they get started. “It’s cloudy. It could rain. I’ll stay inside.”
- There are people who will start, but at the first sign of things not being perfect, they will turn around. “I’ll try it. But if I feel one rain drop, I’m done. I’m made of sugar and might melt. Donuts be doomed.”
- There are people who will be on the journey, but when things get a bit challenging, they bail out. “It’s raining. I’ll stand under this tree and call Uber.”
There are people who will think ahead. “It’s cloudy. Meteorologists are glorified Psychic palm readers. I’ll bring a wind breaker, waterproof boots, or an umbrella. Just in cases.”
And all those things are how people think of emergency funds.
The people who just stay inside where it’s warm. They think nothing could ever go wrong. Why would it? It’s warm in here.
The people who start, get little momentum, then life happens. The fund goes up, and back down to zero. Or negative zero. That’s a real number for many people. They never get going again.
Then the half of people who take a belt and suspenders approach. Rain. It’s been known to rain. It will probably rain again. It’s been sunny for 254 days. But, I’ll be ready. Just in cases.
Listen to this shocker:
Raiding a retirement fund has a 10% penalty, which is peanuts compared to the long term impact. Pulling $10,000 out of a retirement account for ‘something’ costs about a year’s worth of living expenses during retirement. Someone could have retired 365 days earlier.
So if someone is thinking it’s a good idea to use a retirement account to cover a big emergency, they could be working an extra year to recover.
Clearly not having cash on hand leads to a domino effect of bad things happening. One after the other.
- Loss of money coming in.
- The rent or mortgage can’t be paid
- The retirement accounts get raided
- The nest egg gets scrambled
Which is why building up this rainy day fund is so important. It’s self-insurance. You already have health insurance, car insurance, home insurance. Things we all hate paying for and hope we never have to use. But when we do, it’s a huge relief.
That’s the emergency fund. The cash cushion. It’s like the giant net if you were an acrobat walking across the tight rope. When you fall, and it’s like landing in 20-foot pile of cotton balls. That’s 6.3 meters for the international listeners of The Scott Alan Turner Show.
Trust me – we all fall at some point. The only question is how hard or soft is the landing. Cotton balls vs. concrete.
Everyone starts out looking down at concrete. With planning, you’ll get to the cotton balls. White fluffy balls of fluffiness. They don’t hurt. They are the insurance policy for a loss of income and for having to work an extra year.
And it takes time. It takes everyone time. Just do a little at a time. First you start to see a few cotton balls down there as you’re walking the tight rope. Like a few snowflakes falling from the sky. Then a few more. Then they really start appearing. And after however long it takes you’re up to your knees in savings. You could flop over any day and take a nice nap.
Bring it life, we got this one covered.
If you’re paying off debts right now, pay off the debts. That’s the priority. The emergency fund comes later. But plan on filling it up.
I know you’ll want to do this little hack. Today I want you to give your Rainy Day Fund a name. Even if there is nothing in it. Get the account setup for when you can put money it. It’s going to be your goal. It’s a little hack to give it a name that’s powerful to you.
You see “Rainy Day Funds” are boring.
Try naming your fund something like the ‘Save My Fanny Fund’. Because that’s what it will do someday. And please, you know the advice around here is amazing. So many of you have told me about thinking ‘What Would Scott Do’. That question has helped you come to the best decisions.
So when you think of your fanny fund, think of me.
We want to get you on the side of the 50% of people and listeners that have money, and sleeps well at night, with a cotton ball safety net.
After you pick a name for your rainy day fund, email us. We want to hear what you come up with. Winner gets 200,000 bonus points; bonus points are worth nothing.