Hey, I’m Steven and this is Solving The Money Problem.
If you’re new here, welcome.
For the regulars, hello again.
This is the first in a new series of videos in which I’ll be sharing my core investment
philosophies.
These principles have guided me from broke student to...well… I’m not broke anymore.
Let’s just leave it at that.
If your home is robbed, if you’re in a car accident, if you have a medical emergency
-- you probably have insurance.
Well, what if you lose your job, are injured, have an unexpectedly large expense or go through
dramatic changes in your circumstances and don’t earn income for an extended period
of time–can you cope? Before even thinking about investing in stocks,
or real estate or anything else, you MUST--absolutely MUST--build up a financial safety net to protect
you from unforeseen events.
This gives you what I call “survivability” and allows you to invest with confidence.
This idea of having a financial safety net is not new. The problem is, most people think
about it completely wrong. They think in terms of dollars. “How much money should I have
in my safety net?”
WRONG QUESTION.
This is not about money, it’s about TIME.
Here’s a better question:
“How much TIME could I survive for if for whatever reason, I was unable to work?”
And then, ask yourself:
“Am I comfortable with the answer?".
"Is my time buffer big enough?”
So, how do you figure this out?
Easy.
We’ll need a calculator, and a brain.
Or just a brain if it’s good at calculating.
Step 1. Determine your CURRENT living costs.
Review or track EVERY dollar you spend for at least 3 months. This isn’t negotiable.
You MUST know EXACTLY what you are currently spending. Don’t estimate. KNOW. This is
really, really important. Don’t be lazy pr**k. Just do it.
Let’s imagine your current living costs are $4,000/month.
Step 2. Determine how much you could reduce those by costs (if necessary).
Now that you’re familiar with your current expenses, you can run through and figure out
what could be reduced or eliminated entirely. Uber eats? Netflix? Your drinking habit? Expensive
girlfriend?
Where can you save money, and how much? Once again, don’t be lazy. YOU NEED TO KNOW THIS.
Don’t guess. CALCULATE.
Let’s imagine you could reduce your expenses by $1,000/month.
Step 3. Add up your current savings and other liquid assets.
How much do you have saved PLUS invested in liquid assets that could be turned into cash
on short notice?
Let’s imagine you have $10,000.
Step 4. Think about other ways you could come up with cash.
Do you have items of value you could sell if necessary? Could you borrow money from
family? Could you rent out a spare room? Remember, this is the worst case scenario. Don’t guess.
KNOW.
Let’s imagine you could come up with another $10,000 in an emergency situation.
Step 5 - Figure out how much time is in your current buffer.
So, you have $10,000 saved PLUS you can cobble together another $10,000 by selling stuff,
borrowing from family etc. That’s $20,000 total.
And your expenses can be reduced to $3,000/month.
Let's do the numbers.
$20,000/$3,000 = 6.67 months. Your time buffer is 6.67 months.
You could survive for just over half a year.
Step 6 - Is your time buffer long enough?
Once you know how much time you have in your buffer, ask yourself “Is it enough?" Am I
comfortable with this? Can I sleep well at night know that this is how much time
I have stashed away in case of emergency?
If the answer is “no”, you have a f**king emergency on your hands. Fix it immediately.
If the answer is “yes”, your job is simple.
Invest the rest.
While doing so, maintain your time buffer. If your circumstances change, you may want
a larger or smaller buffer but you do not want to have way more time stashed away than
you need to sleep well at night because it’s better invested, than sitting idle.
In my personal case, each time I bought a piece of real estate and took on more debt,
I increased my time buffer substantially. While everyone was calling me crazy, telling
me I’d lose everything and saying I was taking on too much risk, I executed on my
investment plans with confidence, because I’d done the numbers, built my time buffer
and knew I’d survive in the worst case scenario.
Over time, as my sources of passive income have grown, I’ve reduced my time buffer
accordingly and a few years ago, something wonderful happened.
My time buffer became effectively infinite. I have permanent survivability.
So, the question is, how big is your time buffer, and is that long enough?
I’m Steven Mark Ryan, this is Solving The Money Problem, and I love you all.
Thanks so much for watching. Let me know your thoughts in the comments below. How big does
your time buffer need to be? 10 weeks? 10 months? 10 years?
Is it already big enough or do you have work to do? And is this a concept you’ve thought
about before?
And as always, if you have any ideas for future videos, let me know. I read all you comments.
p.s. If you’re still watching, you’re AWESOME.
This channel has kind of blown up since it launched and I’m working on making the best possible content for you guys, but it takes time.
Consider supporting the channel at http://patreon.com/solvingthemoneyproblem
so I can continue creating content for you guys. There’s a link in the description.
Either way, the kind of support is you being here and watching, so thanks again.
So why were there SpaceX videos playing in the background?
Great question.
SpaceX’s mission is the make life multi-planetary.
While we are here worrying about our personal time buffers, Elon Musk and SpaceX
are creating a time buffer for humanity itself.