Imagine this: It’s 2008, and financial markets are crashing everywhere.
People worldwide are scrambling to sell their investments as quickly as possible.
Investors are sweating bullets, desperately trying to rescue properties from foreclosure.
Lehman Brothers, a major financial institution, has just collapsed.
Yet, one man was quietly strolling around America, snapping up high-quality businesses at a bargain price.
This man is the Michael Jordan of the investment world: Mr. Warren Buffet. (If you’re wondering who Warren Buffet is, he made a cameo in the Entourage Movie.)
He invested $5 billion in Goldman Sachs, a move that has proven to be astute.
How did he do it?
He had been steadily building up cash in his coffer, prepared for a rainy day, a downturn like this.
Buffet knew that the bad times always come and go (think about all the market highs and lows we’ve seen in the last 30 years!)
But he sees these gloomy times not as setbacks but as prime opportunities for those organised and prepared to seize them.
His robust stash of cash let him weather the storm and capitalise on opportunities.
Let’s break down why it’s wise to have cash stashed in your coffer (ideally 3-6 months of your fixed costs):
- It’s your safety net when times get tough.
- It’s your ticket to jump on opportunities when they pop up.
- And it’ll help you avoid bad debts.
Steps for building up your cash stash
- Jot down all your fixed costs. Think about fixed costs as money out the door before you’ve been paid (sad but true).
- Calculate the monthly total for your fixed expenses and then multiply that by six.
- Next, check how much cash you have in your bank account/s. Are you on target? Above? Or is there a shortfall?
- If there’s a shortfall, divide the shortfall amount by 52. That’s the amount you need to set aside weekly over the next year to have a healthy amount of cash stashed.
If you’ve got a surplus stash of cash, think about how you can get that money working harder for you.
You can download our Money Flow Playbook here for more practical steps to get control of your money.
And our Investment Playbook is a great starting point if you’re keen to learn more about getting your money to work smarter for you.
I’ll leave you with the famous Warren Buffet quote: “Be fearful when others are greedy and greedy when others are fearful.”
Cheering you on!
Download our Money Flow Playbook
Click here to download a copy of our Money Playbook and Dashboard.
Book a free phone chat
Click here to book a free phone chat to talk about your specific situation.
Financial Advisor Geelong.
Important
This is general advice only. Your personal objectives, needs or financial situation have not been considered when preparing this information.
You should consider the appropriateness of any general advice we have given you and, if necessary, seek advice before acting on it.
It’s always recommended to consult with a qualified tax professional to maximise your tax position.