We talk about financial planning principles all the time, and how to prioritize your cash flow. In fact, we have a savings hierarchy that details how you should you focus your savings.
The fourth part of our savings hierarchy is short-term cash, which is essentially money that should be saved for expenses you’re expecting to cover in the next one to three years. We typically say this cash stash is used for things like weddings, a house down payment, or a family vacation; ultimately, though, it’s in your hands to decide your goal for this money.
One goal for Seneca followers might be to create an Opportunity Fund. This is a bucket of money that’s earmarked for an opportunity. Maybe a piece of real estate you’d like to invest in will become available. This fund would allow you to take part in a capital intensive opportunity that pops up without much notice. This would allow your preparation to meet an opportunity and create “luck.”
Having an Opportunity Fund would allow you to jump on a time sensitive project when you might not be able to save, get a loan or liquidate any other assets. More importantly, you may not want to liquidate some of your assets (401k, IRA, etc.).
Building an Opportunity Fund can be as simple as opening a bank account, and setting aside a pre-determined amount of money each month.
An Opportunity Fund isn’t limited to a real estate investment. Here are three common ways that we see Opportunity Funds utilized.
- Investments – This goes back to the real estate example above. Another example might be that you have a buddy looking for private investors in his business. Either way, this is typically a riskier venture but with a possibly high return. These are not investments that should cause you to reallocate your retirement assets, though. Instead, you can leverage your Opportunity Fund and hopefully enjoy the high returns without risking your future retirement.
- Unexpected Purchases – There may be times when you buy something that doesn’t necessarily come with any expected return, and that’s okay! Just as long as you have your opportunity fund. You may have wanted to buy something, but haven’t felt the ability to pull the trigger. No matter if it’s a last minute trip or a pair of shoes, because you have an Opportunity Fund, you’re able to make that unexpected purchase.
- Donations – From time to time, there are family members in need or great opportunities to help a cause that’s near and dear to your heart. Having an Opportunity Fund allows you to help out without putting any of your other financial plans or goals on hold.
Building your Opportunity Fund can be done over time and in many different ways. There’s no rule of thumb per se, but we might suggest keeping a few thousand bucks your Opportunity Fund. If you’re interested in investing in real estate you’ll need more money in the fund while if you’re just looking for a surprise concert stash you’ll need less.
Consider starting an Opportunity Fund next time you’re wondering what to do with the rest of your bonus.
Follow Us on Instagram to see our new series on about all of the amazing things you can do with your opportunity fund.