For those of you who have been following us you know that not too long ago we wrote a blog post detailing milestones we want to check off as we progress through our journey towards financial independence. We’ll we are happy to announce that we have now hit Milestone #3!
On February 19th, 2016 we successfully reached…$5,000 in cash for our emergency fund!
This many not seem like a lot to some, but to us it’s a pretty big deal because we’ve been on a mission of consumer debt annihilation and almost all of our extra cash has gone to pay down debt. When you start thinking about earning only 1% on $10,000 saved in cash versus having to pay someone else 18% on $10,000 in borrowed funds it’s pretty much a no-brainer. Get rid of that debt like your hair is on fire!
We once read that “The difference between the rich and the middle/lower class is the rich EARN interest, while the middle/lower class PAY interest”…and…“The borrower is servant to the lender”.
Our family is tired of being servants to debt so we’ve been paying if off while building up our New Life Portfolio to help us improve our long-term cash flow position and get us closer to our FI goal.
For our family, $5,000 at this time is a reasonable cushion to hedge against any “genuine” unforeseen emergency expenses in the near future. While there is the risk of things like illness, car malfunctions, and home repair emergencies exceeding this amount; we believe it is better to have our credit lines paid off and available rather than simply packing more debt on top of existing debt. In addition, this improves our cash flow position as the funds previously used to make principal and interest payment on earlier debt before the emergency are now free to go into savings and investments during that time period.
We still plan to put money away in our emergency fund going forward however; we want to remain highly focused on debt repayment and dividend growth investing as our main priority. The reality is savings just doesn’t add much to improving ones cash flow position. When you put money in savings and have to withdraw the funds for a one time expense that money is gone never to return or earn you interest again. You have to keep earning income from an outside source to replace it. However with dividend growth investing (DGI), as long as the company is in good standing, your investment will provide you with “cash flow” that will keep coming right on time all the time. That cash is yours to do with what you please. Pay off an expense or reinvest…but guess what… next paying quarter those funds will be there again. The ultimate benefit associated with DGI is lower to no taxes and passive income that we don’t have get up as early as 5 a.m. and go to a job to earn. That’s the kind of life we want to live and the life we are looking to trade our life for.
Stay tuned for our next Milestone Achievement and we’d love to hear your opinions. How much do you think is adequate for emergency savings?