Cash Is King: Part 7 – Opportunity Seeks Liquidity
As humans, we have an intrinsic need for meaning. Just like work or conversations without meaning suck the very life out of us, so do rituals and habits that are disconnected from their meaning.
The physical action of saving a portion of everything you earn, as we know, has long been championed by great thinkers as a foundational principle of building wealth.
But honestly, if we are to commit to something as a lifelong practice, it must have a deeply personal meaning, or it’s easier not to do.
I recommend first building up an Emergency Fund of 6 – 12 months’ worth of expenses. This “cushion” or “rainy day fund” is money that you would fall back on if you lost your job or had an unforeseen expense crop up. Having savings for emergencies gives you the peace of mind that you won’t spiral into crisis mode at the first sign of difficulty.
Building an emergency fund is a worthwhile endeavor, but it hardly has the power to motivate us to save for the rest of our lives.
Saving in an emergency fund is finite. At some point, whether it be in a few months or a few years, you’ll have filled up your emergency fund. What then? If building an emergency fund was the only reason you were saving, your habit will quickly fizzle out and die.
But if you’d like to be in a position to see and seize opportunities, building a substantial savings over and above your emergency fund will give you the ability to do exactly that.
We call it an opportunity fund.
The reason to continue to save a portion of your income for the rest of your life is to build up capital that you can use for opportunities that will increase your cash flow.
Luck is when preparation meets opportunity. – Seneca, Roman philosopher
You’ll soon find that when you have money waiting for an opportunity to be put to work, you see the world differently. You will find opportunity everywhere. The greatest opportunities are seen most clearly by the people who have prepared themselves, disciplined their mindset and their tastes, and have set aside liquid money that is ready to be deployed for productive use.
Wise investors look for opportunities that match their personal investment criteria in things they know and control. They are patient to stay in a cash position until they’ve identified the right opportunity for them.
While you are looking for these opportunities, prepare by continuing your habit of saving. When you see an exceptional opportunity, you will have the ability to seize it. You’re poised to take action, especially in a crisis, because you’ll find premium assets at a discount, and you have the cash to make the purchase.
So after you’ve tackled the emergency fund, you can get to work on the good stuff: building your opportunity fund.
The person in pursuit of financial independence values having capital to use, leverage, and deploy, and continues saving a portion of their income, as long as they continue to earn.
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