Not sure about you, but we here at Savings Guide are sick to death of hearing people tell us to set aside a little bit of money each month to create an ‘emergency fund’.
Not that it isn’t a wise move; it’s just a little boring. The idea of having money set aside for emergencies will normally result in money set aside for your next big screen TV purchase, rather contradictory to what you had set out to achieve.
That’s why we have moved away from the term ‘emergency fund’ and started aiming to create a ‘war chest’. The phrase was used in the days of yesteryear to describe a set of funds tucked away by countries to fund upcoming wars, a protection chest if you will that would help defend, protect and battle any neighbouring countries advancement in war.
The reason we like the term ‘war chest’ is simple. We are well and truly at war with our finances, debt is the enemy, spending our foe, investing our weapon. This means we should look to create a war chest with enough funds to be readily prepared to strike when a great investment or opportunity to financially benefit arises.
How much should be in your war chest?
This is totally up to you, though my goal for the upcoming years is to have around $50,000 in cash. It will be hard to achieve, but exciting to work towards. This means that if an opportunity presents itself requires capital, I will be prepared.
What can you use your war chest for?
For me, it’s a way to safeguard myself. Should I no longer have a job, or better yet, resign from my job and start my own business, I will have $50,000 tucked away ready to invest in myself.
If the stock market becomes ripe with opportunity, I have the capital to invest. If I am close to paying off my home loan, my war chest will cover the last big payment. The ideas are endless and the feeling of having that much money set aside is amazing.
Where should you keep your war chest?
Under the mattress won’t do for me. Instead I will opt to save my money in a combination of places. A large lump sum in a term deposit, to safeguard myself from withdrawing it, while the rest of the money will be split between a high interest savings account and my home loan redraw function.
More: Compare popular term deposits
More: Compare popular savings accounts
Technically it would be better kept on my home loan, though to keep up motivation, I want to see my term deposit and high interest account grow daily, something I can check in on frequently as I want to admire my hard work.
Are you ready to start a war chest?
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||Alex Wilson is the founder and editor of Savings Guide, Australia’s number one saving money website. For regular money saving tips, visit Savings Guide or follow Savings Guide on Facebook.