$2500 Is The New $1000 Emergency Fund

Imagine if I told you that you need to be recording all your videos on a camcorder and using VHS tapes from now on.

Would you keep taking technology advice from me? Heck no...not if you're under 80 years old.

Here's the problem. That's the same thing as when someone recommends that you have a $1000 in your emergency fund.

Certain money personalities made that popular back in the 90s...when VHS and Blockbuster Video ruled our Friday nights.

Disclaimer: For my under 21 readers, Blockbuster was a joy you'll never be able to comprehend in this digital on-demand day and age so we'll just move on.

Why $1000 Isn't Enough

Why are certain people still saying $1000 and why is that so incredibly wrong? Let's dive into it.

1. Its a cute, nice round number
2. People don't like to change what works even if its wrong
3. Inflation is up 100% since the 1990s

That means if you could buy four new car tires for $1000 in 1990, then now those same tires will cost you $2000.

A lot of these financial gurus come up with something catchy but don't change their advice as time goes on.

That's bad news for the people who follow everything they say religiously.

The world changes and our financial outlook should change on it.

Is $2500 The Answer?

So, if you have $2500 in your emergency fund, is that enough? 

Yes and no.

If you are in debt-payoff mode, then $2500 is enough.

Go hard one those additional debt payments and knocking out the principal.

But its not enough if you are in a financially stable situation.

If you have money left over and are investing outside of your 401k every month, then you need to stop and invest in your financial foundation.

The bare minimum is 6 months expenses saved. The max is 12 months.

What's the thinking behind that?

In times where certain industries have mass layoffs, it can be hard to find a job.

The average recession lasts 11 months. 6 months will give you time to weather the worst of the storm.

More than 12 months expenses saved is counterproductive because if we are in a time of hardship, that means that investment opportunities are cheap.

Therefore, you need to have cash available OUTSIDE of your emergency fund to be able to invest when things are dropping in value.

That is how you accelerate wealth. But we'll cover that in upcoming issues.

This Is Step 1 Of The Wealth Building Playbook

Every single finance advisor worth a damn will admit that getting your emergency fund set is the first step to wealth building. We're just arguing about how much you should do and now you know my thoughts.

This is Step 1.

There is nothing else that matters.

Don't look at any other shiny objects till this is done.

Get that $2500 locked in and lets get moving on the rest.

There's a world of opportunity out there but we can't build the house until we set the foundation.

This is where it starts.