The emergency fund is like a necessary evil. We know we need one, yet hate that our cash lazily sits in it. We feel guilty if we don’t have one. In terms of an emergency fund, many of us fall into one of two groups:
- Either we can’t justify leaving our cash sit in a bank earning 0% when we’ve been taught to chase returns on our 401k.
- We don’t have the available cash flow to save a few thousand dollars because we carry personal loan and credit card debt with interest rates at 8-10-20% or more and it eats up a lot of our cash flow!
The irony is, the low interest rates in the banks and the inaccessibility of our dollars in our 401(k) puts us in the position to have to borrow at those high rates!
There’s a solution to this, and my plan is to re-design the emergency fund.
With what I’m about to share, you’ll be able to re-frame the concept of an emergency fund from a necessary evil (where lazy dollars reside) to a productive asset and a great place to store cash!
Opportunity (not Emergency) Fund!
The change of calling it an opportunity fund, not emergency fund is not just a shift in language or semantics. It is a strategy that WILL help you grow your wealth with more certainty and dependability over time, all while keeping your cash liquid and nimble to jump on opportunities/emergencies when they arise.
Side note: Opportunities do arise…when you take the time to learn how to invest and you begin to identify investing opportunities. You’ll find that opportunities are around us every single day! Opportunities present themselves when the student/investor is ready!
It’s easy to overlook and miss opportunities when you stay in the box that Wall Street and the big banks have built for you. They want you to keep sending money their way. They like your cash flow. They profit from it. And they’ll do anything to keep cash flowing toward them!
Mechanics of the Opportunity Fund
If we pull back the curtain, we can see the use of an opportunity fund right in front of us. Do you have any idea where banks and big businesses store their safest cash? Where they store their emergency funds?
Banks store a good chunk of their safest cash in life insurance contracts. FDIC Insured banks control over $160 billion in cash value within life insurance contracts as of 2017.
They are safe, liquid, accessible, productive (they grow), they are dependable, and they have significant tax benefits.
It sounds like this type of account may fit well as an opportunity fund!
The cash in these life insurance accounts can grow when we aren’t using it (something that we want our safe money to do but it doesn’t do in a bank). The money can grow while we use it (the leverage capability allows us to utilize the money by strategically borrowing against it while it still grows), and we have the capacity to increase our storage over time!
Here’s a framework for building and using your opportunity account:
- Start storing some of your cash in a policy.
- When you need cash, borrow against the policy.
- When you invest, borrow against the policy.
- When you earn from your investments, catch those earnings in the policy.
The re-design is that easy! Now that your savings are growing dependably each and every year, you can begin to think more wisely and strategically about your investing.
Quotes always help translate bigger ideas into concise statements, which makes the following one perfect. “Remember, its not what you make, its what you keep.”
Keep and Grow more with a properly designed whole life policy.
Want one for yourself?….
At Paradigm Life we can customize a policy to fit your financial situation. Our expert Wealth Strategists are available to answer your questions and show you customized illustrations, outlining an individual plan of action to help you achieve your goals. , no strings attached.