The War Chest

Oh hello, I’m glad to see your still reading. I was hoping you would continue after being bombarded with all those numbers in my previous posts. I’m still trying to remember that not everyone is a numbers/data nerd like I am but since your still here maybe I’m rubbing off on you a little? Ok well, on to the next topic…

Now that you have gotten to “know your numbers”, you’re probably wondering what to do next. I’ll tell you how Mrs. B and I started out on our financial journey together. When we were married in 2011, I’ll admit we actually didn’t have this whole grand financial independence plan put together or figured out. We were both natural savers and knew we wanted to grow our wealth so the first thing we did was open a joint savings account. This was to be the cash account that we would always maintain for emergencies. We never wanted to be in a situation where an emergency like a large medical bill or home repair would hinder our wealth building process. This is where I recommend you start. Don’t worry about investing in stocks or bonds right now. Let’s get that emergency account started first. When I explained this emergency fund concept to my sister and potential future brother in law recently, he called it a “War Chest”. I liked that expression, so let’s call it that going forward.

Most financial experts recommend keeping between 3 and 12 months of your expenses in your war chest. This will be easy to calculate now that you have your “Prosper Daily” app. I would set a goal for yourself of 3 months to start. When Mrs. B and I got married, we wanted a bit of a larger war chest. Even though it was quite a bit more than 12 months of our expenses, we set a goal to accumulate $100,000 in it. We’re pretty conservative by nature and just thought this nice round number sounded like a great goal so we immediately shifted all of our resources to hit this number ASAP. We ended up reaching it in a little more than a year! Impressive yes, but what I didn’t tell you was that we also put all of our individual savings accounts and gifts from our wedding in there so we probably started with somewhere in the neighborhood of $30,000.

We now use the war chest as our emergency fund but also as our “slush fund”. Whenever there is a large purchase to make like plane tickets for a vacation, quarterly income tax payments or when we paid off Mrs. B’s car, we feel very secure. We still add a significant amount to this account every month but it doesn’t really grow as much anymore because we constantly use it for various things. We don’t worry about where we will come up with cash when those inevitable emergencies or luxuries arise, and when they do, they won’t hinder our plan for financial independence.

We like the online banks because they typically have higher rates than brick and mortar institutions. We use Capital One 360 who offers a whopping 0.75% on our money. WooHoo *sarcasm*. Take a look at bankrate.com for current offers for online savings accounts and get started right away.

Once the war chest is built up we can move on to more exciting things like investments which will provide the growth your money needs to reach your ultimate goal…

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