Money Lessons Applied to Life: How To Build Your Mental Emergency Fund

What?! A mental emergency fund?  Yes; this is an analogy I thought of while walking on campus today.  Just as we want to have a savings fund large enough to be able to handle seriously unexpected expenses, accidents, and the unfortunate events of our lives, so too we need to have some sort of psychological buffer against the sometimes harsh diversions our daily lives can take in the form of various kinds of stress.

The analogy works in the other direction, too: your financial situation will reflect whatever planning and priorities you have exercised up until now.  If you’ve made mistakes in the past, chances are these mistakes had monetary consequences as well.  As a young 20-something, I once worked three jobs, leaving myself with no spare time except for transportation and sleeping – and I saved none of it!  Saving just wasn’t within my field of vision, even though I knew that one was supposed to do it.  I think I just thought that someday I’d “naturally” have more money, and I’d start saving then.

This is a bit of a creative metaphorical post, but if you can entertain the abstraction, I think it’s worth thinking about.  And it always helps to see old problems in new ways.

Correlations Between Financial and Mental Emergency Funds

1. Planning. In order to get anywhere with anything, you need a plan.  A plan is like a bubble of protection around your life and your finances.  Without it, you will be reduced to merely reacting to the immediate environment or immediate demands on your money.  The events of life will shift you in one direction or the other and will dictate how much you spend and on what you spend it if you don’t have a plan for the direction you should be going in.  This envelope of protection includes the emergency fund because with an emergency fund you’ll never have to worry about being diverted from your ultimate course in life – if something comes along to hit you, you’ll be ready to take it on and you won’t have to stray from your financial or life path in order to do so.

2. Prioritizing. Prioritizing is essential both within the structure of your ultimate plan (above) but also surrounding it in regard to other aspects of your life and your portfolio.  Pareto’s 80/20 rule: 20% of the things you do give you 80% of the benefits you reap.  Identify that 20%.  What are really the most important things you need to work on?  What 20% of emergencies are going to be the most dire, the ones you most absolutely need to have the money saved for? Or: what 20% of your life is so important that you don’t want to wreck it due to financial problems or other contingencies?  Direct most of your personal and financial “protection money” there.  In practical terms, what 20% of your life will benefit from being the most organized and well-maintained?  A clear desk is a clear mind.  You’ll be able to keep up on the status of your priorities better when you can see to the bottom of the stream of life you stand in.

3. Purposification (anti-procrastination). When you know your plan, and you know your priorities, you need “oomph” to put the pedal to the metal and get on with it.  In finance, it’s easy: just automate your savings.  Psychologically, we also respond to automation: it’s called habit.  When you first try to create a new habit it’s the most difficult, and that’s when we need to put the most of our efforts into it.  The more it becomes habit the less we need to think about it.  Unfortunately this also means that we’re least aware of habits we already have, including the bad ones.  So to remove a habit you also need to get really conscious about it.  See a similarity?  Whether you want to add or remove a habit, you have to do the thinking and put in the effort (here’s some thoughts on how).  A truly effective life can’t be lived on cruise control.  The more awareness we can bring to each moment the better if we hope to realize our goals.

How does this relate to procrastination?  When you’re continually aware, or striving to stay aware (which kind of also means “accountable to your self”), you won’t settle for putting something off.  Because no future moment will ever be ultimately different than what you’re experiencing right now.  Because you determine what you’re doing in each moment.  You make the rules of your own experience.  As Dave Navarro has said, you can always say “I don’t have to feel this way.”

Psychological oomph comes from committed motivation.  Motivation maintained over the long term is discipline.  Discipline is the practice of putting the behaviours you want into continual practice so they either become habit, or so that you at least do them long enough to meet your goal.  Motivation itself comes from an awareness of how much you want to achieve your goal and what it ultimately means to you to achieve it.  So the antidote to procrastination is to stay in touch with your purpose, which is the meaning behind your plan (point #1 above).  Purpose is the “oomph.”

To make deposits into this mental emergency fund, all you have to do is direct your attention to any aspect of the above cycle of planning, prioritizing and procrastination.

How much “life energy” will you waste if you don’t work on what you need to be working on now?
What will be the years of your highest “cashback rewards” on life?
What kind of “life cashflow” are you receiving right now?
What’s your critical mental cashflow mass for becoming “psychologically free”?
How much life leverage do you have?

The more we can keep our money and our lives in line with our values, the better off we’ll be.  And while that’s easier said than done, these three aspects of planning, prioritizing and purposification* are clearly keys to the process.

*[I bet Havi over at the Fluent Self will appreciate this latter term, which just reminded me of her great many neologisms, which are so great because they're also noologisms!:)]

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Tagged as: emergency fund, financial planning, lifehack, meaning, psychology, purpose