You’re late career corporate worker who’s behind on retirement savings. Join the club (LINK HERE?). You probably think every extra penny you earn should be put towards 401k catch-up.
That’s a smart strategy to get the most out of your retirement fund, but it’s not the first thing I recommend if you want to be in a safe financial place sooner rather than later.
Build a Disaster Fund First
Okay, I’m fully aware of what a term like “disaster fund” brings up in many people’s minds: Paranoid doomsayers with a basement full of canned food, or a million dollars stashed away in 8 different currencies (3 of them crypto).
I want people to understand my recommendation doesn’t come from a place of paranoia. We all saw what financial crisis looks like back in 2008, so putting away a chunk of change for a disaster like that makes a lot of sense.
On my own path to rehab my retirement planning, building a disaster fund was something I did well from the beginning. I managed to save up two years of living expenses, putting it in a bank account that creditors couldn’t touch.
And you know what I felt?
Not a sigh of relief, but instead a sense of empowerment. I felt liberated. Free. Even hopeful.
Because, you see, you can do a lot in 2 years. If there’s a financial collapse, you lose your job, or you get diagnosed with the most expensive illness in the world, you have time and options to work your way out of the problem.
In two years, the entire economic landscape can change. But in two years, you can also completely reinvent your lifestyle. You can be well along the way of running a profitable new business.
Two years is breathing room. No one’s saying you should focus on the worst case scenario for retirement — that’s bad for your health as is. But you should plan for it by building your disaster fund first. Then 90% of that worry goes away.