Introduction
How Much Cash Should You Have on Hand?
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Content
Foreign yeah we're gonna, kick it off with a question from Luke.
He says I'm 29 and on step, 7 of the financial order of operations.
Congratulations right! Yeah shout out to Luke! Do the rules about saving cash change once you hit the 25 savings rate that we talk about, I've been investing the extra amounts but I'm wondering if I should have extra cash on hand in case the quote-unquote tide goes out.
So how should you think about this? So he's asking the powder money, question: Brian, okay, I'm doing what I'm supposed to be doing I follow the financial order of operations if you've never heard of that go to moneyguy.com Resource.
Whatever you want it up.
We have a free deliverable, oh yeah, we have a free deliverable.
We can go check out the nine tried and true steps, and he said: hey I'm, on step, seven I'm in the hyper accumulation phase, since I'm doing that should I start to become a little more.
Opportunistic should I think about building up more cash than what I had in step.
Four emergency reserves and start thinking about future opportunities.
Brian I'd be curious to know when you're Financial Journey as you've worked through the financial order of operations and has different opportunities of presenting themselves.
How have you navigated the whole powder money decision well and Luke you're, asking a great question and there's it's almost like this- was designed for these things to roll right into each others, because remember just for those who are not as familiar familiar with the financial order of operation step.
Seven is that strategy once you reach 25, you're saving and investing automatically um into you know for the future hyper accumulations, where you really pay attention to the three bucket strategy.
When we talk about the three bucket strategy, we're talking about your after tax money, we're talking about your traditional tax, deferred money and, of course your tax-free Roth money, which is all powerful and and Luke, is probably looking at this going man, okay, I'm doing the 25, but now where do I get into the the big decisions? Not only of do I keep more cash, so I have more powder money for the future, but is this one I fund? The kids college is this: when I buy the 9 nicer car and expand this the lifestyle, all the all those things bleed right into step.
Eight of the financial award operations really well, because that's exactly what you've already done, the the foundation so now you're you're playing out is this after tax is this tax deferred, which is Step seven, but now you're kind of graduating into step? Eight, you say: what's the next dollar need to go to and I will tell you in my own Journey I have found, and- and this is something you can learn from watching- people like Warren, Buffett and others is I- do want you to build the foundation first and that's what steps one through seven will get you but step.
Eight gives you the freedom now to say Hey.
How do I become my own little mini Warren Buffett, where when everybody else is struggling to pay the basics because they have zero cash, we know the typical American close to 60 can come up with a thousand bucks.
You know what that creates.
That creates opportunities for those who are more disciplined, who do have cash in the bank because we all treat cash like it is the the easiest and most basic thing that we take it for granted until all of a sudden we're hurting, and it's just like oxygen where we go underwater and we go.
Oh, my gosh that thing I take for granted and I breathe in every day like oxygen, all of a sudden, I need it and it's Priceless and it's worth anything and everything, that's exactly what happens with cash and that's why Warren Buffett! Every time we have a financial crisis.
Everybody always goes and says: hey to the point that this weekend, I don't know if it's true, because I've been too busy coming back from vacation catching up and everything, but there's rumors that all these private jets are flying into Omaha and as soon as they start seeing like 30 planes are flying into Omaha.
They have to assume.
Well, you know what the government and all these Bankers must be going to go, see the Oracle for Omaha to figure out how we're going to get all the banks into better places.
That's a one heck of a place to be because we know Warren, Buffett and Berkshire Hathaway made billions after the Great Recession, because when everybody else was struggling to have money, they had resources and were able to capitalize off of that now, look I'm not saying sit around with a bunch of cash to the point that it's unhealthy for you, but I think there is nothing wrong when you get into those more mature stages, you do have a decision when you're in Step eight and then leading into step nine that maybe you pre-pay some additional debt like you're you're, you look at your mortgage.
You look at other things and say: should I pay down more debt or should I be like we've, I bought real estate, I mean when Bo and I.
When we came through the pandemic, everybody was thinking we'll go work from home forever and maybe for some people they are, but I also knew that this was going to create a contrarian opportunity that a lot of people who are going to be scared about owning commercial real estate would probably be looking for the exits as well as the government was very scared about this, so they created a lot of opportunities to to reduce the friction by opening up the small business, 504 loans and so forth.
It was the perfect opportunity if they, if you were sitting on extra cash, you could go utilize this, especially if you're a small business owner and you actually need to pay rent to to put your business somewhere owning the building that you have.
Your business in is a great great wealth builder in the long term, after you've made it through the first step.
Seven steps just like what Luke is talking about so I like cash, but I, don't think it has to be something.
Just don't do this in step.
Four, don't do this in step, five make sure it's after you've built that Foundation of saving and investing 25 five percent set it for the people automatic so that it you know.
So it's your actual wealth building doesn't stop just because of your reacting to the market.
