Building Your Safety Net: The Importance of a Flexibility Fund

Building a Flexibility Fund: The Key to Financial Independence | Bryan Foltice Behavioral Finance Podcast

Welcome to the Bryan Foltice Behavioral Finance Podcast! In this episode, Dr. Bryan Foltice discusses the importance of the Flexibility Fund as a crucial step in achieving financial independence. He shares personal anecdotes and practical advice on setting up this fund, which serves as a safety net for unexpected expenses and provides financial freedom. Learn how to prioritize savings goals, manage debt, and create a financial buffer that opens doors to future opportunities. Don't miss out on tips to turn your financial life around and build a secure and flexible future.

00:00 Introduction to the Podcast
00:25 Introducing the Flexibility Fund
00:58 The Importance of the Murphy's Fund
02:00 Steps to Eliminate Debt
02:52 Building the Flexibility Fund
03:54 Personal Journey and Financial Turnaround
05:08 The Daniel Fast and Its Impact
06:52 Achieving Financial Independence
10:18 Setting Up Your Flexibility Fund
13:09 Investing Your Flexibility Fund
15:17 Maintaining Financial Discipline
16:57 Conclusion and Listener Engagement

Transcript

0:04

Welcome to the Brian Foltis Behavioral Finance Podcast, where we unravel the mysteries of behavioral finance and unlock the secrets to making smarter, more informed decisions with your money. Now, here's your host, Dr. Brian Foltis. Hello everybody, and welcome to the Brian Foltis Behavioral Finance Podcast. It's me, Brian Foltis, and today we are going to be talking about the Flexibility Fund. And this is going to be a part of the Money Strong program that we've been rolling out starting with college students and college graduates. And we'll be expanding to all adults. And this program is the financial order that I use as far as prioritizing savings goals. And financial independence goals. I've been using this now for 20 years. And so this flexibility fund is a second step after increasing your savings and having that Murphy's fund goal of a thousand dollars. So we've talked about that in the last episode where setting aside 1, 000, figuring out a way to do that, whether it's a combination of reducing expenses or increasing income, we're just going to figure out a way to come up with that 1, 000 and that is going to set you yourself apart from. majority of American households who don't have a thousand dollars to come up with an unexpected expense. So when your car breaks down or you need new tires or brakes or you go to the emergency room on a Thanksgiving day with a sick wife like we did and you actually have Money to pay for that without running to credit card debt or running to a loan shark. So The next step though, once we get that 1, 000 set is to Decide a if you have debt. Let's see how we're going to Get that out of your life and We've talked about We're gonna be talking here later about the different types of intensity levels of getting out of debt Now if you have followed, Dave Ramsey and some of the other get out of debt The intensity level tends to be very high. And what I've noticed is, because it maybe works for one group or one category of individuals, doesn't mean it's going to work for everybody. So we take a step back, we learn about the different intensity levels of getting out of debt, and then try to pick your path. But, once we get out of that debt, the next step is to Build up this flexibility fund now. This is gonna look very much like What you might have heard before called an emergency fund and It essentially is the same thing. We call it the flexibility fund because I Perceive this fund as not like a doom and gloom doomsday device is opening the door for flexibility to make decisions in our lives. So just fucking call it what it is. It's a flexibility fund and I'll show you, I want to explain like how I've used this fund to provide flexibility to get myself where I am today. And so again, why we need this and this flexibility fund won't when. I was in my 20s. This was Now in Florida, where I was living in Jacksonville, Florida, and had my student loan debt, took on car loan, took on the credit card debt, and Rolled all that up and was that about 28, 000 and had made that decision that my twenties were going in the wrong direction. And this is not what I wanted to do with my life. And going backwards financially, physically, I was getting out of shape. Like it was just very quickly going the wrong way. And I finally recognized and had that moment to myself of. All right, let's figure out a way to turn this around and so we did This was through our church and you'll be able to detect my intensity level Based off of this but through our church in January, we would do a 21 days of prayer and fasting This was for me Kind of that moment of all right, and we're gonna change our lives. We're gonna turn things around it's not just financial. It's physical. We're doing all of this and what I decided to do on that 21 days in January was a Daniel fast So this is from the book of Daniel in the Bible where Daniel fasted for 21 days and he ate nothing but raw fruits and vegetables and water for that time. And so I did this Daniel fast and so it the modern day version of that was fruits and vegetables some beans which also put coffee in play and then what else was that? I think it was. And we had some tofu in there for protein, that ended up being the main thing. And then juices, so a lot of juices, and we were trying to do that. And do that for 21 days, and it was really interesting because as shitty as the first two to three days were, where you're grumpy and Hungry what ends up happening is you start to have a lot of clarity. Maybe you're just delusional. I don't know, but you have a lot of mental clarity. Your body starts to shape up. And so when you're in your upper 20s or high 20s in age, 21 day fast means I lost 25 pounds, I think in that 21 days. So it just went off and lost it like that. But that was also the time when I was really trying to consider what I wanted to. We're starting to shift back towards, do I need to get back into shape to play basketball again and try to go back to Germany? And what are we going to do around that? And how can we do that? When we have the that here, how can we just leave when we're owing people money for all these credit cards? And that's when it was the, you're going to work for the next year to get out of debt. And. And then you're going to build that flexibility fund, which is about three months worth of expenses. And that's what I ended up doing for that entire year. I ended up staying in shape or getting in shape for basketball. I worked like crazy to get out of debt. That meant working my full time job at Fidelity from about seven to four, 7am to 4pm. And then after that, Go home for dinner, and then in the evening it was, I had some buildings that I was still cleaning from my commercial cleaning company that were still quite profitable, and I would clean those in the nights and weekends, and that was a quick way of getting out of debt. And then building that precious flexibility fund, which I had set at about it was 12, 000 and I don't recall my expenses for the month. It was probably around three months worth of expenses. And that was when That 12, 000, I'm just having that set aside was just so precious to me and that helped aid us in selling all of our possessions and moving with the dog and a 13 month old overseas to pursue. The PhD in Germany. So once again, that's when I call it a flexibility fund for a reason because it finally gave us the ability to be flexible where we didn't owe anybody any money anymore. And now we had just a little bit of a cushion for a rainy day to, to have that flexibility to go then and pursue what we felt like we were called to do. Yeah. That's where I like to think about it. And I'm not just saying it as like this positive talk kind of thing. It's no, you use it for flexibility. You need to move yourself out of a less than ideal situation. Now you have a cushion to do that. And again, when you follow the program and you're making your way out. out of debt, or you are out of debt, you're starting to get that first glimpse of true flexibility. And that is the on ramp to this financial independence. So, I also realize that unexpected medical bills, hospital stays happen. There can be some negative Events that happen that costs and you can lose your job and have cuts like that and home repairs take They happen. So I'm not just saying oh, it's nothing but great stuff That flexibility fund gives you the opportunity to pay for some of life events that negatively Happen and they're always gonna happen. So and sometimes it the 1, 000 Murphy fund doesn't take care of all of that all the time So you can have it for a number of different reasons and this also having this flexibility fund, just like the thousand dollars for any big events, keeps you away from loan sharks, keeps you away from credit cards, and just keeps you out of that financial trouble. It gives you just that little bit of buffer zone and. Okay. So how much should you save here for this flexibility fund? You already have that thousand dollars set aside in your Murphy's fund. So this is a nice starter. The next goal you want to think about it's about three months worth of expenses and that would be one set and you can go, hopefully you have a financial plan written out for your monthly expenses. Just take a look at how much your monthly expenses are. And try to get three months worth of that. If you are looking at your financial plan using the Money Strong program, you're going to notice you have your monthly bills set in one column. You'll have their final number of all those bills. And then you have the first three entries. And these first three entries are gas and car maintenance. This is, and then it's groceries and food. Those are like your four walls. If you have your bills paid, and gas, and your car running, and food on the table, those are the essentials that I would consider. Some of the entertainment and travel, those things can get cut. So even if you're looking at this as the first step, try to find those numbers. How much are your monthly bills? How much are those first three entries in your financial plan? And see if you can come up with three months worth of that. After that, this is going to be dependent on what you want to do and your job stability. Depends, do you need to extend this out 6 to 12 months? If you are a seasonal worker or you notice that your hours fluctuate quite a bit based on a lot of factors that you can't control, these are cues to extend your goal to 6. months of expenses. We're going to, the more uncertain or the more volatility risk that your paycheck has, the longer you want to extend your monthly expenses as your buffer. If you have a pretty stable. financial financially stable paycheck that doesn't fluctuate very much, then you can start erring on the three months of expenses because essentially once you're done with this flexibility fund goal, then you want to move on to investing and other financial savings goals. But once again, this kind of comes down to your own particular situation. I know with mine, it's pretty predictable. Now being a tenured professor here there's one thing that can be said about it. There is some pretty good job security around that. And so we tend to err on the three, three to four months worth of overall expenses. And we just have that set aside and now moves into our separate, our next conversation of where to invest it. If you've done that thousand dollars. Of Murphy's fund savings. You already have. A high yield savings account open, or you have a brokerage account open that allows you to have your money just sitting in a money market fund, which again, here in February of 2025, it's going to give you around four to four and a half percent based on the money market, but you're not going to lose value. It's not going to go up and down with the market each day. And so we're just going to set that aside. It's going to earn a little bit of money on. And so you'll see that grow as you have that flexibility fund set aside. Don't, I don't tend to do a lot of aggressive investing around this and With this money, so I just want it to stay safe stable, but as you further develop your financial plan and you have A lot of money and now you have some passive income coming from that extra money You can start adjusting that and using those funds to invest but again, as you're starting out just having that Nice cushion and keeping it stable in a money market fund is generally going to be your best option for you, so you do that in your separate account and as you are Building this we're following the same principles that you already have used for your first thousand dollars where you're automating it You're paying yourself first So this happens when you get your paycheck, that money comes out first. You're not waiting till the end of the month to whatever else is left, man. I did that for a long time and I can attest, man, it does not work. Even the most disciplined people, it will not work. Pay yourself first. And then if you have a bad month or things don't go the way this happens, you can always take it back. It takes basically one to two business days to retrieve the money from your money market account. So because you are not invested in a stock there's no T plus three settlement trading days to be able to retrieve your money or to be able to access it. You can basically, if you have a Bank account to move it back and forth from one of these accounts is not going to take more than one to two days So you have all these systems in place and now it's starting to work from you for you on a higher level we're following the same principles of trying to figure out ways to reduce your costs a little bit and to increase your income and When you combine that you, you try to avoid this lifestyle creep getting those bonuses or your tax refunds or anything like that. We're going to resist the urge to. know, go crazy and to just let your spending keep up with your income. So all these fundamental things here are crucial to just setting up a sustainable financial lifestyle. And, but now you have really built this foundation that gives you that flexibility to take the job that you want, take the vocation that you feel. do in the location, huh? See vocation in the location that you want, that if you have to get up and pay, you can use that flexibility fund to create the life that you're looking for. And now you're going to start feeling. This control, the sense of control and the confidence that comes with it, that is going to motivate us to then go, all right, the foundation is set. This feels really good. I'm starting to feel power. What's next? We've got those steps ready for you and how we're going to continue to shape our financial lives once we have this flexibility fund set. But for now, I'm going to relent and we're going to stick a pin in it from here and we'll come back and we'll talk about some more topics, but let me know what you think here. What? What is your ideal amount of expenses? Is it three months? Is it longer? Is it shorter? Where are we at with this? I'm totally open to any conversations Do you? Keep it somewhere else. Does it work for you to keep it in the same place? It doesn't for me, but I would love to hear from you and have any comments. I would love to hear from you Find me on Instagram or on YouTube or on any of these podcast platforms if you have something nice to say I would love to hear it too. Please make sure you send a comment and every little bit helps grow this messaging. We're trying to get that percentage of people living paycheck to paycheck down from 60 percent to a lower number. And it starts with you starts with sending it to your friends. So thanks very much for listening today. Have a wonderful day and we'll see you on the next episode. Bye. Thank you for tuning in to another episode of the Brian Foltis Behavioral Finance Podcast. We hope you found our exploration into the fascinating world of human behavior and finance, both enlightening and thought provoking. Be sure to subscribe for future episodes and until next time, stay curious and financially savvy.