Sometimes life throws hints that financial clouds and rain are on their way. To best prepare, we need to go into financial storm mode. Learn how to prepare and withstand the worst money storms.
Before starting my debt payoff journey, I had never heard of financial storm mode.
Now, sitting here having experienced the year 2020, I am fully aware of what it means and why it’s important.
Let’s discuss what financial storm mode is, how you can decipher what should be considered a storm, and the best ways to prepare.
What is financial storm mode?
If you are new to your financial journey, you may be wondering just like I was, what the heck is a financial storm?
A financial stormis a life occurrence that threatens your finances, incomeor leads you to more debt.
Some prime examples would be a job loss, health concerns for you or a family member, divorce, bankruptcy, or I don’t know maybe a PANDEMIC!
Financial stressors like these can be lsessend by going into what we call storm mode.
When you are in storm mode you are stockpiling cash for these exact circ*mstances.
Is finanical storm mode for emergencies?
An emergency can put you in storm mode.
Often we refer to storm mode as emergency mode because it involves some type of abrupt financial misfortune.
The misconception that people have about being in storm mode is that it has to mean something bad.
Some good things can put you in storm mode like, moving, a job change, or a growing family.
What is the difference between being in storm mode and having an emergency fund?
An emergency fund protects you from unfortunate accidents and unexpected expenses.
If you want a full detailed explanation of what an emergency fund is, and how you can build your own, check out this post HERE.
Saving for an emergency fund means intentionally saving for a possible future expense.
Being in financial storm mode means you are knowingly saving because you are experiencing a direct threat to your finances.
Storm mode is usually for something specific
Another difference is your emergency fund could be used for many things. Think of it as a life protection plan.
We use the term emergency fund because it encompasses all the possible unexpected expenses that can occur. Maybe your car breaks down, you lose your job, you need medical help, a new furnace, or your dog needs sugary. An emergency fund can help you with any of those things.
Being in storm mode means you stop everything your doing because your husband just got word that he may lose his job.
Storm mode example
Let’s take the pandemic as an example.
No one could have predicted living through a worldwide pandemic. But when the pandemic hit, many people went into storm mode. People lost their jobs, businesses closed, and schools shut down, so people started stockpiling money.
Another common example is going into storm mode if you are having a baby.
It is hard to know these days how much having a baby is going to cost. Saving up money until mom and baby are home safe and the medical bills are paid relieves so much stress.
My husband and I have gone into storm mode twice.
Once when Michael chose to take a pay cut, and now during this pandemic.
Both times we stopped whatever financial goal we were working on to save up as much cash as we thought we would need.
Once we were comfortable with the amount we continued with our financial goals.
The beauty of being in storm mode is if you don’t need the money, you can send it elsewhere once the storm is over.
If your in storm mode
- You stop working on any other financial goals. If you are currently paying off debt, stop and start saving your money.
- Figure out a timeline. If you are anticipating something like a job loss, consider how much time you may have to save. Save as much money as possible so you can comfortably look for new employment. How long do you have before that storm potentially gets to you?
- Figure out your bare bones-budget. If that storm is going to cost you a lot of money or decrease your income, figure out how much money you need to live. A bare-bones budget is the most basic necessities like shelter, food, and transportation.
- Is your storm mode just a stockpile? Preparing for a move or a baby is a great example of this. Having a baby could present as a storm because you are unsure of what could happen. Save up for the time being and if you don’t need it allocate it elsewhere.
Being in storm mode means stopping everything else
Remember a storm is something that has a direct threat to your money or income.
To prepare in the best way possible, you need to stop whatever else it is you’re doing.
Being in storm mode protects your money and the possibility of you accruing more debt.
Lifes storms are what put people in financial situations they can’t handle.
Remember YOU are not most people.
Storm mode is important for those who don’t have an emergency fund
Even though they aren’t the same, an emergency fund would give you a buffer to your storm.
Maybe you think you have enough in your EF to withstand the storm.
Are you willing to deplete your EF to pay for the storm if it does appear?
What if the storm comes and then something bad happens on top of that?
Having an emergency fund can protect you from a storm but that doesn’t mean you will want to use it.
And if you don’t have and EF at all, you need to go into storm mode if you see disaster approaching.
Is storm mode like cash-flowing or like saving a sinking fund?
Storm mode usually means you are saving up for something serious or pretty impactful.
Cash flowing in the debt free world means paying for something without going into debt.
And these aren’t usually alarming situations.
Like college or Christmas.
The purpose of cash flowing is to pause whatever financial goal you are working on to save up and pay for something without dipping into savings or borrowing money.
Sinking funds are more for saving smaller increments of cash overtime. You can read more about sinking funds HERE.
Sinking funds and cash flowing expenses do have some overlap with storm mode but aren’t synonymous.
Going to college and buying holiday gifts is something you can control. Losing your job or getting sick isn’t.
Key points
- Financial storm mode means you stop whatever goal you’re working on to stockpile cash
- You can consider something a financial storm if it has a serious threat to put you in more debt
- You can still be in financial storm mode even if you have an emergency fund
- If you don’t have an emergency fund it can be crucial for you to go into storm mode when needed
- Saving for a baby, a potential job loss or a health concern are common examples of storm mode
- You know when your in storm mode as opposed to having an emergency fund for unexpected expenses
Withstanding any financial storm means you can get out alive. Going into financial storm mode allows you to minimize the impact. If you see an expense or income issue coming, you can work on lessening the blow.
Life is going to happen and storms will brew but, your financial success will bring back the sun!
Have you experienced a financial storm?
Interested in reading more?
How to start saving for your emergency fund
What are sinking funds and how they will save your budget
The best way to budget for beginners
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