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SMART INSIGHTS FROM PROFESSIONAL ADVISERS

Emergency Funds Can Have a Surprising Downside

If you're only saving for emergencies, you’re missing out. Go beyond that with an opportunity fund. My family tapped our opportunity fund twice last year, and it changed our lives.

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Why save for opportunities when everyone tells you to only save for emergencies instead?

Because you’ll be operating from a place of abundance, not scarcity, and that can make a world of difference.

SEE ALSO: The Secret to Squeezing More Happiness from Every Dollar You Spend

It’s valuable for each family to have a cash emergency fund that can be tapped for true emergencies — like a car breaking down or furnace repair in winter — but this needn’t be more than a few thousand dollars. Typically, an emergency fund is a pot of money equal to three to 12 months of living expenses.

Once you’ve comfortably saved for an unforeseen, short-term emergency, then you can turn your attention to higher aspirations.

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Let’s Get Real

It was devastating to our family when my husband lost his job in summer 2016. Bryan is a highly educated, hardworking and ethical man. He attended college on a full-ride scholarship and graduated in four years with undergrad and graduate accounting degrees.

Bryan went on to work for a Big 4 international public accounting firm and then transitioned to a corporate role at a large, highly regarded company. He worked full-time and took evening Master’s in Business Administration (MBA) classes at a prestigious local university. Bryan transitioned into a new position and graduated from the MBA program within 2½ years.

When the company was downsizing in 2016, my husband received his pink slip. It was a shock to both of us! He was fortunate to have a small severance package, but that only covered a few months of unemployment. Luckily, he found a new position before his severance ended.

In 2016, we were grateful that we didn’t have to draw on our emergency fund. I use the term “emergency fund” because both Bryan and I were then operating under a scarcity mindset.

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Using an Opportunity Fund for Overseas Travel

The story doesn’t end here. Our opportunity fund enabled our family to take a big risk and pursue my dream of living abroad in early 2018. (Read Budget Travel Tips Straight from a Financial Planner’s Own Family Trip Abroad for the nitty-gritty financial details.)

Bryan worked long hours, came home exhausted and rarely exercised in 2017. When I asked about his day, he rarely had anything to say. The stress of this job was wearing him down, and our family life was suffering. We were financially strong, yet crumbling on the inside. Something had to change.

Bryan and I decided in late 2017 to take our three boys to Spain for three months. We traveled to Barcelona, Valencia, Madrid and Seville, witnessing the beauty and magnificence of these historic cities.

As an entrepreneur who leverages technology to serve clients locally and remotely, I was able to work from my laptop while overseas. Bryan’s position, on the other hand, couldn’t be handled remotely. Bryan left his role in December 2017, promising me that he would use time in Spain to re-evaluate his career. He also agreed to be the primary caretaker for our sons and home-school them while living in Spain.

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We heavily relied on our opportunity fund while living overseas and again when we returned to the U.S. in April 2018. Bryan’s search for employment continued over the summer, and child care and camp expenses were hard to fund on my income alone.

Our opportunity fund was valuable for two BIG reasons:

  1. It enabled us to live in Spain, and
  2. It provided financial security during Bryan’s subsequent job search, giving him time to find not just a job, but a fulfilling new career.

See Also: How to Live Frugally Without Skipping Starbucks

Are You Engaged in Your Work?

Career fit and engagement are interconnected. Gallup’s State of the American Workplace report released in February 2017 finds that only 33% of U.S. employees are engaged in their jobs. That means 67% are disengaged. Are you in that 67%?

Being professionally engaged means you have purpose to your work life. Setting and achieving big goals is realistic. Because you are in a state of “flow,” it doesn’t feel like you are “working” most of the time.

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If you are lazy or apathetic at work, you probably fall into that 67% group and should strongly contemplate alternate career paths while building an opportunity fund. Also consider talking to managers who may be able to assign tasks that play to your strengths. Leaving the organization altogether is not the only solution — you may be able to switch roles within the company.

When your personality traits, values and job responsibilities are in alignment, you are more likely to be engaged at work. Work satisfaction spills into other areas of your life as well. You become a better parent, spouse, sibling, son or daughter, friend and neighbor.

In other words, career choice matters. To better understand if you’re in the right profession, take this quick, free assessment.

Just because you start down one path does not mean you cannot change it a few years later. Consider reading Jeff Goins’ The Art of Work if you know you are stuck and want to uncover your calling.

How to Make an Opportunity Fund (and Change) Possible

The concept of job satisfaction is closely tied to an abundance mindset. As Henry Ford once said, “Whether you think you can, or you think you can’t — you’re right.”

Staying stuck in a scarcity mindset not only lowers your ability to find a fulfilling career but also mentally prevents you from building an opportunity fund. Your brain may still tell you to build an emergency fund, but once you’ve done that, it’s time to take it to the next level and think beyond emergencies to how you can expand your horizons.

How much should you save in your opportunity fund? Only you (and your professional adviser, if you have one) will be able to provide direction on the amount. It’s specific to YOUR goals and dreams, not some arbitrary number. Our family took some of the cash we had already saved in an emergency fund and repositioned it to an opportunity fund. Our income in 2017 was stable enough to keep three months of living expenses in the emergency fund and move the rest to the opportunity fund. Any new savings — outside of retirement or college savings — went into the opportunity fund. Having returned from overseas travel, our emergency fund is intact and we’re working to rebuild the opportunity fund.

Prioritizing an opportunity fund over retirement savings is a slippery slope. It’s better to strike a balance. If you can save 15% of income and already have an emergency fund established, perhaps contribute 8% to retirement and 7% to the opportunity fund. Don’t let short-term intentions deter you from reaching long-term goals.

See Also: True or False: Test Yourself on Social Security Basics

Deborah L. Meyer, CPA/PFS, CFP®, is a fee-only financial planner and investment adviser based in greater Saint Louis. As the owner of WorthyNest, Deb helps conscientious parents build wealth. She is a proud member of NAPFA, Fee-Only Network, XY Planning Network, and the AICPA. Deb is passionate about family, faith, finance and travel. In fact, she is blogging about her family's recent three-month adventure in Spain.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.