Exploring the financial safety net, happiness, and increasing income

Welcome to the Intentional Dollar weekly newsletter — great work taking this small step to move your money forward. I’m Logan, a Certified Financial Planner™, and I’m excited you’re here!

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

_{One tool to experiment with:}

The Financial Safety Net:

If you had a financial fall, how far down would you go?

Life is full of falls. We run along and the unexpected inevitably happens. Lose a job, quit a job, get a diagnosis, crash a car, repair your home, or simply spend more than you earned. These things can wreck us financially — if we’re not prepared.

Since the magnitude of a quantitative risk is generally unknowable (until it occurs), we have to rely on approximations or rules that mostly work.

When it comes to money, the best tool to absorb a financial fall is a safety net, or emergency fund.

The safety net is our cushion for life’s falls — it’s a form of self-insurance.

If you think about insurance broadly, it’s a way to transfer financial risk. We use insurance for our car, our pet, our health, and our life. Typically, a good deal in insurance is to pay to transfer a low probability, high cost event to an insurance company. You’ll pay a fee, but the fee is more bearable than the full financial cost — if the event were to occur.

We can’t insure everything, and some things are too cost prohibitive to insure (high probability, low cost items) — we retain those risks and self-insure. This is done through our safety net.

The bigger the safety net, the less impact you feel from the fall. Financial planners often recommend 3 – 6 months of your average expenses dedicated to these funds. If you spend $3,000 per month, that’s $9,000 - $18,000 of cash ready to cover your next fall.

Where should I save this money?

With current U.S. interest rates — high yield savings accounts are the best place.

Addressing the size of these nets is important. The very idea of saving 6x your monthly expenses is daunting. In our example above, that’s $18,000 just to meet the baseline benchmark. Your number may be higher or lower, depending on your circumstances and your risk tolerance.

The 3 – 6 month benchmarks are merely guideposts for us to reference; they are not absolutes. In fact, there is no right number of dollars to keep in your savings. The key point is having some is better than none, and having more is probably better than having less — from a risk standpoint.

Here are some sizing points to consider:

• If you’re single, you should stitch a wider net. If you lose a job, you are out all of your income, rather than some of your income.

• If you have an unreliable vehicle, older home, or health issues — stitch a wider net to protect against a higher probability cost event coming your way.

• If you want to start a business, stitch a wider net to provide a higher margin of safety to take this intentional financial risk. Example: starting a photography business that costs $2,500 is less risky if you have $25,000 saved than $5,000.

• If you have an unstable job, or uneven income, keep stitching a wider net.

Changing the perspective to a safety net, away from the standard emergency fund nomenclature, doesn’t shortcut the amount of needed savings, it simply allows you to stay motivated on the long, boring road ahead – seeing each dollar as a tactical thread in the net rather than a bland bill in a big bucket. 

Another element with a strong financial safety net is that it allows you to take more risk. Maybe this is through your career, investment mix, or side hustle. When you have a broader net, you have fewer financial constraints.

Money would be easy to master if we always knew our costs, but we don’t. Use your financial safety net to catch you when surprises knock you back.

_{Two quotes on happiness:}

Happiness is often related to money in a when/then philosophy. When I have $1,000,000, then I’ll be happy. When I buy my dream house, then I’ll be happy. The reality is that the habit of deferred happiness will continuously create unhappiness. Happiness can be found now, if you look for it.

_{Three questions on increasing income:}

1. What online course could I take that might provide a skill that generates more economic value in my current role? (sales, Excel, programming, data analytics, marketing, public speaking, etc.)

2. What if I tracked the economic impact of the work in my current role, learned negotiation, and leveraged this into a raise, more time off, or equity compensation?

3. What hobby/skill could I monetize — i.e. photography, Excel consulting, social media management, writing, design?

Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.

_{Four lines of poetry for the point:}

Contact Me:

Content ideas, questions? Reply to this email or reach out to me at [email protected]