You don’t get car insurance because you plan on getting in an accident. You don’t buy home insurance because you predict your house will burn down. You don’t keep 3 months of living expenses in the bank because you predict the apocalypse is coming. You just do it because all kinds of crazy shit happens that you can’t predict. Actually I believe everyone should have 6 months to (preferably) a year’s worth of living expenses just sitting in the bank. Individuals should have living expenses and businesses should have operating reserves.
Before the trolls hit the comments I will put some disclaimers here. I know that people have lost their jobs due to no fault of their own. I know that everyone’s circumstances are very different and that many people in fact do need assistance during this time. I do think that government aid is needed and I don’t want anyone to go hungry – now or ever.
I believe it’s important that people get the financial assistance they need from the government right now. But I also believe there’s a much deeper problem that needs to be addressed if we are to ever prevent such financial distress from happening again.
“Only when the tide goes out do you discover who’s been swimming naked.”
– Warren Buffet
How did we go from having the best economy in the history of this country to millions on unemployment and tilting towards a recession (I hope not) in a matter of mere weeks?
It’s crazy to think about but unfortunately not surprising. No one could have predicted coronavirus and what would come. But refer back to the first paragraph – we can’t predict financial emergencies but we still need to plan for them. Seems simple enough but it’s awfully hard when the government sets an example that it’s perfectly OK to be trillions of dollars in debt with no plan of how to ever pay it back.
It’s funny but it’s not. And so consumers started to buy not just what they ~need~ on credit but what they ~want. Hi again trolls. Yes, of course some people come into incredibly unfortunate circumstances through no fault of their own. This post is not about those people and we should do everything we can to help them. On average, American households have $8,398 in credit card debt. We’re not talking about student loan debt or mortgages – this is just credit card debt.
And most people use credit cards to buy shit they don’t need because 1. materialism has run rampant in this country and 2. credit card debt has become normalized.
I hope this is a wake up call for both individuals and businesses that you. need. to. have. reserves. and a lot of them. You shouldn’t be buying a Peleton bike unless you have enough money in the bank that you could live off of your savings for 6 months. Everything is fine until it’s not.
A lot of people live paycheck to paycheck but did you know even people who make a lot of money live paycheck to paycheck? 25% of families making more than $150,000 a year live paycheck to paycheck. There is zero excuse for that. If you make over 150K and have so little self control that you won’t save even a small percentage of your income, you should not be bailed out.
If ~most~ people and businesses had an emergency fund we would not be in this situation. If you failed to save during the incredible economy we just had, maybe you deserve to suffer the consequences of that decision? (Trolls: I’m talking about businesses that bring in millions but now can’t pay rent after two weeks. Hi Cheesecake Factory. But even small businesses should have reserves.)
Many of you know that I was in the midst of buying my first investment property as this was all going down. I stretched my budget a little bit and then there were some unexpected costs that came up. I still have a few months of savings and I could tap into my investment or retirement account if it ever got to that. But I am losing sleep because I don’t have my typical year’s worth of liquid savings. I have learned my lesson. I am going to build my emergency fund back up as quickly as possible and never dip into it again even for the best investment opportunity. If I can’t buy another property for two years instead of buying one every year like I had planned, that’s ok with me.
What’s the solution? I am honestly conflicted about the whole government handout thing (although again I know it’s needed at this moment in time). The problem goes deep and is incredibly complicated. My personal opinion is that financial literacy should be taught in school. And the government should go back on the gold standard. Ok maybe not but they should at the very least start paying down the debt when we recover from this. We will recover and you should have an emergency fund because as the famous saying goes – everything that can go wrong will go wrong. Again and again.
I will keep sharing my passion for saving and try to convince people that it’s cool to be cheap frugal. There’s no need to spend more than $5 on a bottle of wine. If you would like to see more of my finance advice – please visit here. I have written about how to save money, retirement accounts, book recs, and more. Thank you for coming to my Ted talk.
