Why do you wear a seat-belt while driving?
Why do you purchase medical insurance?
Why does one carry two parachutes while jumping off a plane?
Why do you keep your spouse happy?
So you can live in peace, right?
Peace of mind – so important…
Without peace of mind, market decisions are warped. Disturbing factors cause you to take wrong decisions.
Once faced with a market decision, it is extremely easy to go wrong. There are many telling you what to do. Some have agendas, others speak wthout an agenda, for the sake of speaking. Topping that, Mrs. Market starts playing tricks on you. She’s almost always catching you on the wrong foot. You needs to be mentally alert to identify your initial error and correct it as per your outlined strategy. If your mind-control is compromised, you step deeper into the delusive web of Mrs. Market by not being able to identify your initial error, and then the error can get bigger, and bigger, and even bigger, till it has the capability to consume you.
That’s why emergency fund!
You are not bigger than Mrs. Market. No one is bigger than Mrs. Market. You might start thinking you are, because of a few successes. As a result, you might start to play bigger. Over-confidence will first cause you to make a small mistake. Because you will not have identified the mistake as a mistake, owing to delusional conditions, the small mistake might get bigger and bigger, till it becomes bigger than you, and your market career is over.
That day, your emergency fund will feed your family.
So, firstly, make sure that an emergency fund exists for you.
It needs to be accessible, i.e. liquid.
It needs to be sufficiently large.
Its contents should be safely parked.
If it is generating some income of itself, even better, but the emergency fund should not be locked-in. If it is locked-in, you should be able to access it in a maximum of 24 hours, even if you need to pay a small monetary penalty for full and irreversible access.
Your spouse, who you’ve kept happy, should know about the emergency fund, and how to access its contents. If you’ve not kept him or her happy, he or she might access this fund anyhow, and blow it up beforehand. So, keep him or her happy and in a responsible state of mind. It is possible that he or she is just not interested in finance, right, so then what do you do? Wait for your child to grow up, wishing that he or she has an interest in finance! Anyways, someone you trust should know how to access the emergency fund. If nothing else, write out all details in a file, and inform the person you trust of the file’s existence.
Why am I being so extreme about all this?
I’m big on safety. I don’t like seeing a market player blowing up, because I wouldn’t want that to happen to myself. Have you been to a circus?
The acrobats do have a safety line, don’t they? I mean, they practice all their lives, and pull of the most amazing stunts, again and again, day after day, but at the back of their mind, they know it’s over if they make just one mistake. Unless they have a safety line. If and when a mistake occurs, their safety line will save them. The existence of a safety line allows them to perform with peace of mind, and perform well.
It is exactly like that in the markets. One big mistake, and it’s all over.
Unless there’s an emergency fund.
It’ll allow you to survive, recuperate, and get back on track. When you’re back, you’ll most definitely not repeat the big mistake you made. Also, the first thing you’ll do is regenerate the emergency fund, before you get back to proper market action.
Here’s wishing that you never need to access your emergency fund, but also wishing that it exists in the first place.
Here’s wishing that its presence gives you the necessary peace of mind to perform better.