Avi Friedwitzer wanted to leave the company he worked for and pursue a better career. But how would he live in the meantime? He was too busy to train for work in a new field, and he didn’t know how long it would take for him to find and begin a new job. The Friedwitzers did have an emergency fund which could cover about three months’ worth of their expenses, but he wouldn’t call this situation an emergency. Nor did he think that the sum they accumulated would be enough.
What could he do to help himself in his pursuit of better opportunity?
Beyond the Emergency Fund
A financial planning rule of thumb calls for stashing three to six months’ worth of living expenses to help cover unforeseen emergencies such as disability, getting fired, or some other household issue. While this crisis stash is a good idea, building a substantial cash reserve isn’t just for financial defense, it’s for offense too. It’s very hard to take the risks required for building wealth without a solid foundation of savings. This concept has been gelling in my mind ever since I wrote about Talmudic diversification.
Building an Opportunity Fund
The cash reserves recommended by the Gemera (Bava Metzia 42a) is not meant as a protective measure, as secular textbooks assume, but to enable snapping up bargains. Responding to what I deem a “good emergency” requires liquidity, and the Gemara counsels maintaining a hefty cash position for that reason. Here, I’m expanding the concept to consider other ways cash is necessary to seize opportunity. Keeping money sitting and earning nothing may seem like a waste, but it’s not if it lays the foundation for powerful wealth expansion down the line.
Opening a New Business
Say, for example, someone wants to open a business with good economic potential. Doing so usually entails start-up capital—and if one will be engaging in it full-time, they must also be prepared to forgo months’, or even years’, worth of salary. Finding a cash investor for a new business is quite challenging, and due to the added risks of any new venture, partners demand a large chunk of equity for every dollar they put in. Building a hefty opportunity fund before opening shop can enable and enhance the fantastic wealth potential that business ownership may offer.
Taking Sales Position Opportunities
Often, the highest-paid person in a business is the one who brings in new customers. Sale positions can offer potential income that equals or surpasses many business owners’ earnings. On the other hand, these high-potential positions are also usually high-risk positions. It’s common for professionals who get paid commission to go through dry spells from time to time, when they may earn nothing. But with a hefty stash of cash, the risk and stress of the sales roller coaster drop significantly. An opportunity fund can pay big dividends when it opens up the possibility of these highest-paying jobs.
This may sound a bit harsh, but if someone truly can’t afford to quit their job, they are in a form of bondage. The halachic concept that employees may quit at any time (as long as they don’t cause undue financial harm to their employer; ask your LOR) is based on the fact that “ki Li Bnei Yisrael avadim”—Jews are beholden only to Hashem and may not be “slaves” to their bosses. Even in normal employment conditions, those with solid skills should be able to switch jobs if they aren’t being compensated or treated fairly. Maintaining an opportunity fund enables vital freedom.
Opportunity Versus Emergency Fund
Some may feel I’m playing semantical games by differentiating between an opportunity fund and an emergency fund. But on a psychological note, noting that these funds are not for emergencies will enable free spending when a good opportunity does arise. Confidence is key when pursuing a new and potentially risky venture or career, and knowing that the funding is clearly allocated for calculated risks can help minimize the mental barriers to doing so. Even if the new endeavor doesn’t succeed, the pursuit of a pre-funded, thought-out project is a responsible act of hishtadlus.
Where to Park It
On a similar note, while building up lines of credit may help finance new opportunities, loans will never offer the same levels of menuchas hanfesh that a hefty and liquid cash stash will. Money designated for upcoming opportunities shouldn’t be tied up in long-term, volatile investments, but one should consider moving some of the pot away from savings accounts and CDs that offer puny rates, as leaving months or years’ worth of cash exposed to inflation can be costly. I-bonds or short-term TIPS may be an option for intermediate-term assets, as are super-conservative asset allocation funds.
More Money Required
Those who quit their jobs generally aren’t eligible for unemployment insurance, and the best opportunities usually entail longer lead times than simply swapping jobs. As mentioned, a new business will probably require start-up money. Also, as with a sales pipeline, it can easily take 12 months or much more to start producing a healthy cash flow. Each situation is unique, but those who want to pursue top earnings will need to have access to some real money, so this type of financial build-up goes well beyond the few months of household expenses required to cover only short-term emergencies.
Help May be Required
Some high-earner, high-spending families may be able to accumulate a significant amount of cash by lowering their standard of living for a while. Others may be fortunate enough to have unallocated savings from the occasional large bonus, tax credit, or gift from family; stashing these can go a long way toward building an opportunity fund. But many frum couples can’t envision saving up 12 months’ plus worth of expenses in any time frame that could be helpful for reaching for the economic stars. Pursuing financial opportunity may seem as distant to them as the celestial stars.
It’s a sad reality that it’s much easier to get assistance or raise tzedakah funds during a crisis than to help prevent a crisis. Family, friends, and community members should strongly consider pitching in to help those around them build up economically at least as much as they would when approached for financial assistance during an emergency. We all know but may sometimes forget that helping others build a substantial and bakavodig parnassah and thereby avoid needing tzedakah down the road is the best way to help them.