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How to be financially prepared when things go sideways

The difference between an emergency fund and a sinking fund, as illustrated by The FI Guy.

Most financial experts recommend having at least 3-6 months of expenses set aside as an emergency fund. This is used for true emergencies/things that you weren’t expecting (like a job loss or car accident). Hopefully these things never happen, but if they do, at least you’ll be covered. If you have to dip into your emergency fund, re-supply it as soon as you can to get it back to where it needs to be.

The “sinking fund” is something not as many people know or talk about. This is for known future expenses. For example, if you’re a 1099 self-employed individual, you better be setting aside money for taxes, because the tax man comes around every year to collect. And guess what? The car you drive? It will need an oil change and new tires every so often. Christmas and birthdays? They come at the same time every year, so if you plan on giving gifts, you should put money away in a sinking fund to cover those expenses.

The dream killer

Comfort is the killer of dreams.

Most of the things we greatly desire, yet still do not have, are difficult to obtain. With that, you get to make the choice. Do you want to consistently face the difficult? Or would you rather be comfortable and not get what you desire most?

Do you want to look like a fitness model and have big legs, defined arms, and six pack abs? You’ll have to hit the gym with purpose everyday and clean up your diet. You’ll need to stop going out for drinks and eating dessert.

Do you want financial freedom? Then you’ll have to spend your money on assets and live below your means. You’ll need to increase your income and decrease your expenses.

Do you want to become more knowledgeable? You’ll have to reduce your hours in front of the tv and start reading more, networking with people who are already doing what you want to do, and start taking action. Things won’t go according to how you read about them in books and you’ll have to be ok with problem solving and failing from time to time.

If you want “the best,” you usually have to pay for it in some way (sacrificing focused time, energy, money, etc). If you want to live out your dreams, you’ll have to be comfortable being uncomfortable. Because only seeking comfort is a recipe for dream killing.

Trust

Always be conscious of your decisions and the long-term effects (or side effects) they may have. You can spend years doing the right things, but if you cut corners or are involved in questionable activities, it can take seconds to ruin your reputation. Once you break that trust, it will always be in the back of that person’s head on if they can trust you again or not. It could literally take a lifetime to repair that trust, but who knows if it will ever happen.

The best way to maintain and strengthen relationships is by thinking about the long-term. Don’t acquiesce to immediate gratification. You might feel pleasure once (in the short-term), but then live with regret for the rest of your life. Do yourself a favor and live with integrity. It will help others to like and trust you, but more importantly, it will allow you to like and trust yourself.

Perception, reactions, and our reality

“Reality is neutral. Our reactions reflect back and create our world. Judge, and feel separate and lonely. Anger, and lose peace of mind. Cling, and live in anxiety. Fantasize, and miss the present. Desire, and suffer until you have it. Heaven and hell are right here, right now.” – Naval Ravikandt

Change your perception, change what you focus on, and that becomes your reality. Be happy with what you have, but hungry for improvement. Not having many “needs” is an easy way to be content with what you have. Being inspired, dreaming, and wanting to reach your full potential is an easy way to continue to want progress.

Aim to make your life more effortless

“The best decisions are the ones that eliminate many future decisions.”

Making choices can be draining. What you you want to eat, to wear, to do? When do you want to work out, to mow the lawn, to go to the park?

Where do you want to…

How do you want to…

The list is seemingly never-ending!

Instead of experiencing decision fatigue, make certain decisions once and let that be the end of it. Then you don’t have to waste time and energy deciding something everyday. I like doing this by having “rules” that I follow. It’s easier to say, I’m the kind of person who does ____ or who doesn’t do ____.”

Here are some examples:

• I work out everyday. Even when I don’t feel like it, I at least have to get on the bike for 30 minutes.

• I read and write something everyday.

• I brush my teeth every morning after breakfast and every night before bed. After I brush my teeth at night, I do not eat anything or drink anything other than water.

• I wear a seatbelt every time I’m in the car.

• I do not eat fast food.

• I do not “pay” for something on a credit card if I can’t afford it in cash (with the exception of a house).

• I do not participate in gossip. (This is the most challenging one.)

• When choosing what movie to watch on a streaming service, I only get five minutes to pick, (otherwise I’ll be scrolling forever).

These are just a few examples of rules I live by. Once you’ve established your own set of rules, you’ve made that decision once and you never have to make it again. Let it become ingrained in you. Follow the rules that you set and don’t break them. It will make everyday a little more effortless as you don’t have to make a decision on whether or not you should do something that you frequently encounter.