The answer depends of the size of your savings account. If you have a few hundred dollars in the bank, you’re definitely not ready. If you have several months of living expenses, you’re still not ready. What happens if you lose your job and you’re out of work for 4 or 5 months? How will you cover your living expenses?
Do Not Invest the Money You Need to Live
You do not want to tie up or put at risk the money you need to live. Stocks are risky; they go up AND down. And even safe investments are timed. Once you commit, early withdrawals could trigger penalty charges that exceed your investment returns.
We recommend that you bank a “freedom fund” of at least 8-12 months of living expenses before you start investing. This will give you:
- A large enough cushion to buffer you against job loss, an accident, or unexpected illness
- The freedom to consider a change of career, a cross-country relocation, or a 6-month European sabbatical with peace of mind
- Time to study and learn about investment opportunities and strategies.
You’re thinking a cushy savings account would be nice, but how long will it take to save enough to live on for 8-12 months. Most people, when they put their mind to it, can reach this savings goal within a few years. Read “The $500 Cup of Coffee” to find out how.