YOUR WEEKLY MONEY DILEMMA

Emergency Funds first, invest second OR start investing %pay whilst building Emergency Fund?

This is such a common question I get... The great news is my answer is pretty straightforward: Emergency fund first.  

 My general stance is that you should have at least 3 months (ideally 6, potentially even more if you don’t have income protection!) worth of usual monthly expenses in place that is easy to get to when the emergency lights are flashing, and cash is needed fast.  

 The frustration with cash in the bank at the moment is, it's not keeping up with inflation. So, in real dollar value, your money is going backwards. And whilst that is painfully true, this money isn’t to be thought of as part of the pot that’s building wealth. It's safeguarding it, and you. It’s your get out of a sh*t storm when the wind is howling fund. Boring, low risk and fast access. 

 I love investing, but the rule of thumb is the less time you have to reach a goal, the less risky your investment strategy should be for that allocation (similarly – the longer you have, the more market volatility your goal and thus that allocation can handle).

 Murphy's Law would say the moment the emergency lands in your lap will be at the exact time your investments have dipped, so pulling the money out there and then will result in heartache that a) you have an emergency b) you are taking out funds at a loss.  

When markets are down (assuming you have done all your research and are well-diversified), we ride the wave. Downturns can present great long-term buying opportunities... as long as you can be patient.

 Some other considerations: 

 ❗If you are selling Shares or ETFs we have what's known as T2 (meaning it usually takes 2 business days to have the funds back in your account). If it’s a Managed Fund is normally longer, and an investment property... well, forget about getting your equity there out in a hurry. 

 ❗There is tax. When you sell, don’t forget you will need to pay Capital Gains Tax for any gains. 

 ❗Selling during a market downturn (which we have seen a few of recently), can wipe away loads of growth and value. This often leaves new investors flat, thinking that they have failed, and that investing is ‘too risky’ - meaning they get gun shy and don’t invest again.

 ❗If you are going to start investing, time in the market, dollar cost averaging (meaning you regularly add money into your investments irrespective of what's going on in the world) and the miracle of compounding will be your BFF on your journey towards financial freedom.

 We can’t let a bump in the road take you off course, stash cash then turn your attention to investing.      

Have a money dilemma?

Money dilemmas can be a nightmare! They can leave you up all night ruminating about what to do, have you feeling alone and isolated or just plain ol' stuck. So, we are here to help. I am going to tackle one a week and give you my unbiased, no BS general thoughts on how to tackle your conundrum. We would love for you to send yours (or someone you know) in.  

Obvs all of this is general advice only... especially important to note any and all of the comments above do not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs.