Shane Parrish operates the website Farnham Street and sends out a weekly newsletter called Brain Food that’s chalked full of great insights to make you a better thinker. One from a recent newsletter inspired me:
“One of the most beneficial skills you can learn in life is how to consistently put yourself in a good position. The person who finds themselves in a strong position can take advantage of circumstances while others are forced into a series of poor choices.”
Having an emergency fund is the foundational block that puts you in a strong financial position.
This is not exciting advice. Let’s face it, it’s downright boring. It’s not the flashy drive or going for the green in two on a par 5. It’s a layup. It’s a safe shot to the middle of the green, but your emergency fund isn’t meant to score big. It’s meant to stave off disaster and put you in a strong position for your next shot.
By maintaining three to six months of income in cash, you:
- Will be able to take the “best” job and not just the “next” job in the event you find yourself out of work
- Won’t have to take on debt if you experience an unexpected bill like a car repair or medical expense
- Will eliminate the stress and anxiety that comes with living paycheck-to-paycheck, and establish the foundation for a lifetime of financial security
Maintaining a cash buffer between you and disaster is one of the best investments you can make.
It’s not an investment in the traditional sense like buying a stock. It’s an investment in your future to protect you against what could go wrong. It will keep you from being forced into a series of poor choices and put you in a position to make the best ones.
Shane puts it best when he says:
“Strong positions are not an accident. Weak positions aren’t bad luck.”