What Do You Do When Your Nest Egg Runs Out?
Suddenly, you “feel” that there’s no money to replenish your emergency fund.
It took me three years to build up $5,000 in emergency reserves.
But…
If you want to use the money wisely, you’ll need a nest egg. You should never spend this money.
The EMERGENCY RESERVE has several positive aspects. Not only does it allow you to sleep better at night, but it’s also a protection against unexpected things.
Personally, I’ve just found myself in the situation of having to spend a considerable part of my nest egg.
What do you do when there’s no more money to put in your emergency reserve?
Basically, you have several options when you find yourself in a financial situation like this:
Rebuild the EMERGENCY RESERVE as quickly as possible
Rebuild the Emergency Reserve slowly
Don’t rebuild the EMERGENCY Reserve at all
Even at first glance, only the first two alternatives seem reasonable. But arguments can also be found for point 3.
That’s why I want to start immediately with this point.
Anyone who has done this as I have has made their livelihood many years ago.
And fortunately, I’ve never needed it since.
This means that, due to the events of the last few years, I may have been used to investing all of my disposable income in promoting my own financial independence.
Suddenly, you “feel” that you don’t have the money to replenish your emergency reserves.
Cutting the monthly investment amount seems totally wrong. It sounds funny, but that’s how it is.
At least that’s how I feel at the moment.
But of course, we don’t want to rely on our feelings in such a serious financial matter.
It’s important to do the right thing.
So focus on that mission. It is possible. Anyone can do it.
Mission: Replenish the Piggy Bank
For me, the next few months will be characterized by replenishing my emergency reserve.
But where should you get the money from?
As already indicated, the answer is: from the amount of the planned monthly investment.
It sounds like a defeat.
But it’s not.
You can congratulate yourself on having done everything right. At least when the iron reserve was used for its real purpose. That is surprisingly higher expenses.
However, if you’ve used your savings to pay for consumption, then it really is a failure.
So: It’s not a mistake to dissolve the Emergency Reserve (for the right reasons). Therefore, it can’t be a mistake to rebuild the Emergency Reserve.
If you imagine it like a soccer team: the defense was out of work for a long time. The offense had the support of the whole team and managed to score goal after goal.
Now, however, a goal must be prevented as a matter of urgency.
So the forwards need to help out in defense in the meantime and can’t score for a while.
How quickly should the pot be refilled?
How quickly you can replenish your Emergency Reserve depends on several factors.
How much money does it have to fall back on?
How much money do I have available each month?
Let’s look at an example.
Target: Emergency reserve amount: $7,000.
Actual: Emergency reserve amount: $1,000.
Monthly investment amount: $500.
The Quick Option
As you can see, you’re only $6,000 short of fully replenishing your emergency reserve.
Mathematically, you could be fully equipped again in at least 10 months (10 times $500). Then you can invest again.
The right answer is not as easy as you might think.
It means:
For the specific example, the minimum time is 10 months. That’s a very reasonable approach. But it doesn’t have to be that fast.
The Slow Version
Depending on various aspects, you can also slow things down.
If nothing has changed in terms of job prospects, family situation, or other factors relevant to the personal cost structure, the following factors could also be taken into account.
You could therefore make the pace depend on how often the iron reserve has been used up in recent years.
If the iron reserve hasn’t been exploited once in the last four years, then the nest egg could be built up “slowly” again. But it would never fall below $250 (corresponding to 50 percent of the value of the monthly investment).
The calculation is simple: $250 times 20 months = $5,000.
In a good year and a half, you would have replenished your piggy bank. But you shouldn’t allow yourself any more time.
Time to Think
One thing is clear. The quicker you replenish your piggy bank, the shorter the period in which unexpected expenses can arise again.
More unexpected things can happen in 20 months than in 10 months.
So if you look at it in isolation, it makes sense to refill your piggy bank as soon as possible.
However, you can also use the situation as an opportunity to take a closer look at your own financial situation.
What is my cost structure?
Is there a need for optimization here?
Can I reduce my energy costs?
Can I save on financial products?
Does calling money skipping make sense?
The answer is possibly yes.
Build in your own time.
Just go.
Even little by little.
I’m still doing it.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.