Warding Off the Financial Fear Spiral
You know what sucks about being a grown up? The loss of financial freedom. One day you’re care free, spending your weekly allowance at the arcade and then BAM all of a sudden you’re shopping for health insurance.
Sure your parents preached to you about saving your money but you didn’t really get it. So you’ve started to set aside some money in case something catastrophic happens. Better yet, you’re setting aside money so you can leave your 9 to 5 and get into the consulting game as an Independent Developer. But how much money is enough to get into the game?
The general rule of thumb has always been to have enough savings to cover your expenses for three months (including that of your family). The truth is the amount is less objective than that and more emotional. The amount you have to save is any amount that you can look at and not go into the Financial Fear Spiral.
What is the Financial Fear Spiral you ask? Its that experience you have when your savings have been suddenly wiped out or your income has ceased. “Oh man, how am I going to make next months rent? What am I going to do if I get kicked out of my apartment? Am I going to be homeless? I’m going to die alone.”
Dying alone is pretty frightful so another rule is to have two buckets, one that covers the entire family’s expenses and a second to cover your salary for three months.
For your homework you’re going to figure out how much you need to keep the Financial Fear Spiral at bay.
- What’s your average monthly expenses for the last six months?
- Also how many months worth of savings would you need if you wanted to take a stress free three month sabbatical? 3. Multiply 1 and 2.
- Start saving for 3.
In the next post we’re going to talk about strategies on how to build up your savings and why its so important to take emotion out of your business decisions. Afraid you might miss it? Join my newsletter.