Today, we are going to do the follow-up episode to the strategic short-term savings episode that we did in season one. Originally, when I decided to record the strategic short-term savings episode, I was going to do both of them as a forward-looking thing. I wanted to set my goals for my strategic short-term savings and then set the goals for the strategic long-term savings. However, we had a delay in recording.
And we’re finally back. I’m pleased to announce that this episode is actually a forward-looking episode. As of right now, we have our strategic short-term savings already done. That episode has been completed and published. In the few months since I recorded that episode, I’ve been able to get my strategic short-term savings back to where they should have been before I did the episode. I was able to build up enough reserves to start thinking about long-term savings and start building some long-term savings.
So just a quick recap of what the short-term savings were. In the short-term savings episode, we talked about handling $500 emergencies and learning how to prevent $500 emergencies by keeping a reserve of money. These amounts and topics are specific to my financial situation. If you’re a low-income earner, you may set different goals. I don’t want anybody to judge themselves based on my milestones.
In this podcast, I use myself as an example because it’s not always fun or comfortable to use examples that don’t relate to anything. I don’t like using hypotheticals, and I don’t like using other people’s financial situations as examples. So, out of necessity, I use my own financial situation to explain things you can apply to your situation. You can adjust the amounts to fit your budget because personal finance is personal.
You have to create goals and financial plans at your own pace. You don’t want to try and keep up with the Joneses or adopt somebody else’s financial plan because everyone’s financial situation is different. Everyone has a different perspective on discretionary or recreational spending. Some people can live very frugally while others prefer more indulgence. For me, I’m not going to disclose my exact income or bills, but I can tell you that having a $500 cushion solves most of my life’s problems and allows me to use my discretionary income for fun activities. It also enables me to allocate most of my recreational income toward savings and investments.
However, I’m not as frugal as a Buddhist monk. If I decide to have a wild weekend or celebrate my birthday (which happens to be on the first or 30th or 31st throughout the month), I can do that because my budget is set up that way. We discussed budgeting in season one, which helps determine how much money you have left over after paying bills. We didn’t follow a traditional budget; instead, we created a spending plan, and from there, we developed our strategic savings, including the $500 emergency fund.
Now that we have our bills and savings figured out, we can move on to long-term savings. My goal for long-term savings is to accumulate $10,000, ensuring that if something happens, I can afford to take a couple of months off work without worrying about unemployment and such. This is separate from the $500 in my savings account, set aside for emergencies like car breakdowns. In an ideal world, I would have $500 in my savings account and at least $10,000 in liquid assets for long-term savings. By liquid assets, I mean assets easily convertible to cash.
It’s not advisable to keep large sums of money in a savings account, given the risk of bank accounts being hacked. I prefer putting money in places that take some effort to access, like the stock market, which is a cash-like asset that can be withdrawn, but it may take several business days to complete. I’m hopeful that I won’t encounter an emergency costing $10,000. My long-term savings are diversified, so they’re not all in the stock market.
In case of an emergency, I want to have available credit to cover short-term needs, along with my short-term savings. This is why I’m aggressively paying off my debt. Having more credit means being better prepared for emergencies. In an ideal situation, I could use my credit cards and then, within 10 days, withdraw funds from my long-term savings, such as stocks, CDs, or bonds. I could use that money to pay off my credit card bills or cover my financial needs for the emergency.
Regarding long-term savings, it’s not just money sitting in a bank account. For me, it includes my HSA (Health Savings Account), which is tax-advantaged. In a medical emergency, I’d tap into my HSA first. For other emergencies, I might use credit cards or access other long-term savings like stocks, CDs, bonds, peer-to-peer loans, 529 plans, and Roth IRAs. In an emergency, it’s crucial to use available resources.
When you start saving, you need liquid assets for long-term savings. You need assets in various accounts that you can convert to cash quickly. Having available credit is a lifesaver in emergencies. It’s better to spend someone else’s money and then reimburse the creditor with your savings because your money might not be readily accessible. That’s the essence of long-term and short-term savings—having money set aside for your financial security.