TIP 27
SET UP A RESERVE ACCOUNT
Money doesn’t always bring happiness. People with 10 million dollars are no happier than people with nine million dollars.
I used to think that a reserve account was a credit card that still had some room to spend on it. I had no savings except for my company 401K, and I had even taken out a loan against that. I never saw the point of having savings. After all, at 3 percent interest, I wasn’t going to earn any significant interest. And, it was a whole lot more fun to spend than to save so why bother?
That’s the funny thing about having a cash reserve—you can’t appreciate it until you have it. It is just something you have to experience, and once you do, you’ll never go back to your old ways. My first savings goal was to have six months of living expenses in a money market account. Living in Manhattan, this came to about $15,000. At the time, it seemed like a huge and impossible amount that would require years of saving, but I got there in one year. Money came in from unexpected sources—the accountant found a tax refund, my sales team made goal every quarter, and we got bonuses. In addition, I set up an automatic savings plan and $500 a month was automatically deducted from my paycheck before I could get my hands on it.
The purpose of a cash reserve is not to buy a new car, take a trip to Europe, or go on a shopping spree at Macy’s. You need a different spending account for that stuff. A reserve account is a cash cushion to protect you from the unexpected bumps in the road of life. It is for the time when all four tires go out on the car at once, for the plane tickets to see your ailing grandmother, or for that unexpected pink slip. A cash reserve will see you through the inevitable tough times in life so that you can do what you need to do without worrying about the money.
Having six months to two years of expenses socked away will also give you a tremendous advantage at work, whether you own your own business or whether you work for someone else. People who have savings are much less likely to work with an annoying client. I work with all my business clients to develop an ideal client profile. This way, they can tell prospective clients exactly whom they work best with. The business owners who have substantial reserves find it much easier to let go of clients that don’t fit this profile and refer them to someone else who may be better suited to their needs or personality. If you are desperate for cash, you’ll be more likely to compromise your standards and work with anyone who comes along.
If you work for a company, you will be more likely to enforce your boundaries (Tip 5) and maintain your standards if you know that in a worst-case scenario you can always quit and find a better job. A financial reserve is the key to your confidence. So many times I’ve worked with clients who feel trapped in their jobs because they have major credit card debt. These are typically the same clients who are afraid to inform their bosses when they have crossed a boundary and, ironically, to ask for the raise they so badly need. Stop living in fear and start saving.
A cash reserve will help you attract success by giving you peace of mind and a sense of security. You’ll be more relaxed and confident and less worried or anxious. Grace under pressure is attractive, and reserves make it easy to be graceful. With a reserve in place, you will feel a peace and sense of security that may have eluded you until now.