Stunning and Protected One Year Worth of Thank You Very Much Money

Emergency Fund versus Thank You Very Much Money

Here I shall lay out the differences between an emergency fund and Thank You Very Much Money. Some in the financial independence (FI) community refer to a “thank you very much” fund by a different term. The FI community word begins with an “F” and ends with the word “you.” However, as a Family FI blog we do not think it appropriate to use an “F” word. However, it does not take much imagination to figure out what we are talking about, thank you very much.

Dave Ramsey advises in his step three to save three to six months living expenses in an Emergency Fund. Of course, Dave Ramsey’s Step One is saving $1,000 in a starter emergency fund. Whereas, Dave Ramsey’s Step Two is paying off all your non-mortgage related debt via his “debt snowball” program.  I know some people in the financial independence community bash Dave Ramsey.  I’ve never met Dave Ramsey. Dave Ramsey provides a clear and actionable steps to get out of debt and learn personal finance. Dave Ramsey is like the gateway drug to FI. So in this regard I’m a fan of his work. 

Uncomfortable with No Emergency Fund

On the other hand, Big Ern from Early Retirement Now (ERN) believes there is no need for an emergency fund. Big ERN’s emergency fund is $100-$200 in cash at home and perhaps $1,000 in cash in a checking account.  I’m also a fan of Big Ern.  However, Big Ern’s net worth is 30-35 times his FI Number.  Unfortunately, we are not in that position. 

We are doing well financially. We have a Two-Part Strategy to achieve FI by age 59 and a half. As we recently discovered, we are technically Coast FI for Part II of our Strategy from Age 65+. At this point, 93 Months away from when we believe we will reach our FI Number.  We still have a long way to go to reach 25 times our FI Number.  Admittedly, we are likely being conservative on how much money we will need for retirement. We still believe in the importance of an Emergency Fund as we outline more below. Our Emergency Fund is included in our Part I funds targeted for Age 59 and a half to age 65.

The Psychology of Money in Having an Emergency Fund and/or Thank You Very Much Money

We are not officially Financially Independent (FI) yet. However, we are making choices to protect ourselves if we need to pivot and say Thank You Very Much. How are we psychologically and financially protecting ourselves? Technically, we are “losing” money in languid, safe, “investments” such as traditional savings accounts compared to stock market returns. Admittedly, we knowingly are placing ourselves in this problematic situation especially given the highest levels of inflation during the past 40 years. Yes, we are currently based in the U.S. but we love BBC as a news source. We still feel better about having our large emergency fund in a savings account and certificates of deposit.  We know this defies logic from a mathematical perspective.

To us, an “emergency fund” and a Thank You Very Much Money are different.  Until a year ago, we were thinking of our entire net worth as accessible Thank You Very Much Money. 

Previously, our “emergency fund” thinking assume these funds would cover truly unanticipated expenses or unexpected circumstances, including a job loss.  We did not think of the emergency fund as a funding source if you decided to leave your job without having a new one.

Shifting Our Money Psychology and Reconsidering Big ERN

Our thinking shifted in late 2020, during the pandemic while watching the stock market drop and then rebound. This was the start of a bull market. Accordingly, we were beginning to come around to Big ERN’s way of thinking regarding the emergency fund. As a result, we started to divest some Emergency Fund resources and put them into the stock market.  We believed we were in solid at our respective employers. Further, we loved our jobs, so why not invest in the market on the upswing and make more gains?

It seemed logical. One could say, and then the bottom almost fell out.

Fast forward, to shortly before our 100 Month Journey to FI. We pride ourselves on being high performers in our jobs. Unquestionably, we have the numbers and success to prove our high performance. Surprisingly, one day, changing industry winds blindsided our breadwinner. This impacting industry shift resulted in the choice between a buyout or remaining but taking on even more work. Further, the breadwinner’s offer to stay with the employer came with a caveat, a significant pay cut. Additionally, there were other financial and employment considerations.  However, the breadwinner was facing the psychology of money to overcome a major pay cut for a high performer.  Other employees were facing a worse fate of simply a buyout package.

Evaluating A Severance Versus Reduced Salary

We personally know individuals or heard individuals state that a severance offer was the best thing that happened to them.  Pat Flynn of Smart Passive Income used a layoff to pivot and launch his empire. Doug Cunnington tells his story on the Mile High FI podcast.  You can hear the episode here and admittedly was a “bad” worker.  On the flip side, Doug’s former Mile High FI podcast co-host, Carl Jensen, better known as Mr. 1500, hated his job. One day, Carl realized he could retire in 1500 days if he could save up the funds to do so.  Follow Carl’s journey and updates here. I enjoy Carl’s honest reveal of FI failure, including his “death march to FI” and his efforts to become more chill. Carl may have been better to follow our formula for Family FI.

Ultimately, the breadwinner in our household loved the job that provided meaningful work. Unlike most people, because of our frugal, Family FI lifestyle, we could “absorb” the significant loss of income.  Our household still finds the pay cut discouraging. However, we could “absorb” a salary cut better than say some of our colleagues. We have been making a lot of our own luck over the years.

Paying Yourself First Gives You Options

 We know people who say, “they cannot afford to save for retirement.” The desire to retire by age 59 and a half or earlier may exist for many people, but few take the necessary actions to make it a reality. Our world view may be incorrect. However, regardless of their income levels, we have seen or heard of many people making poor spending decisions. 

Many people do not “pay themselves first.” Instead, in our experience, many people spend first and then figure out how much they can “afford” to save that month.  Most people we know that claim they are not able to “save any money,” again, regardless of income level, spend money on things that are “wants” and not restricting spending to only “needs.” The thought of “paying themselves first” is a psychological barrier. It’s true that some people really are in financial straights, such as medical issues that wipe people out financially.

Getting back to basics as I learned from my father (and mother and others) gave me an incredible Psychology of Money advantage. We have used our observations and studying “financial education” and our own desire to advance our goals.

In the end, together we made the decision for the breadwinner to remain in a fulfilling job. Let’s be clear, just because we could technically afford a significant reduction in income does not mean it has not painful. Certainly, the breadwinner’s income reduction has impacted our financial and life plans.  We are utilizing the gift of this clarifying moment

Why All Funds Are Not Emergency Funds

As a “valuable employee” the offering of a buyout impacts your financial mindset. Collectively, as a couple and even as a family on the journey to Family FI we all decided what was most important. For us, Big ERN’s concept of little to no Emergency Fund in cash and having investments in the market could have been problematic. Laying off our breadwinner could have placed us in a bad spot. In our post-event evaluation, we determined dramatic impact without access to additional funding. As a result of this stunning event, we quickly decided that our Emergency Fund needed to be back in boring and protected investments. Having access to cash was more important than making marginal increments in investments.

We decided that a strict savings account of two months plus of living expenses was solid for an Emergency Fund. The reason we settled on two months plus worth of expenses versus three to six months was two-fold. First, in a true “emergency” we could dial back certain regular expenses, such as saving for college in 529 plans or cutting subscriptions.

Additionally, our Thank You Very Much Money could help bridge our finances if we decided to take more time away or make a career shift.

All Thank You Very Much Money Is Not Equal

Our stunning and real-life event was enlightening in that all financial funds are not equal or accessible. How is this possible? We are active and aggressive in maximizing our Pre-tax retirement accounts or tax-deferred accounts. However, we quickly understood that accessing these funds before age 59 and a half was next to impossible without major penalties. Further, we were not age 55 and retiring from our current employer. At that moment, escaping the Retirement Police was not an even option.

We knew having access to Thank You Very Much Money was important as we wanted the power to determine our own professional fate. We are reluctantly embracing that, for our purposes, Thank You Very Much Money is best protected and readily accessible without being impacted by the ups and downs of the stock market. Equally important, we are willingly sacrificing financial growth to secure our freedom. Admittedly, we are unwilling to leverage taking on debt to buy our financial freedom using a real-estate landlord mechanism. More on that at some other time.

Protecting Our Thank You Very Much Money

We can almost taste the Retirement Police in hot pursuit. Accordingly, we are 93 months away from Financial Independence (FI). As we are closing in on reaching out FI Number, it’s more important to play great defense to generate our offense. We are keenly aware that industry changing forces may present themselves once again. Obviously, we are hoping to exercise our best option which is to leave the world of regular W-2 jobs on our own terms. However, if we are facing economic headwinds in which we are no longer gainfully employed, we want to have quick access to our Thank You Very Much Money. Simultaneously, expediting our escape from both W-2 employment and the Retirement Police may be something we decide we can no longer live without. Thus, we are stashing the cash in Fort Knox (or some other secret location).

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