Financial Cushion Gives You Confidence and Options

Financial cushion means building your own VC fund…

John* needs a new car. He’s been eyeing the Honda Civic and feels it would be perfect for him. Unfortunately money is a bit tight, so he hesitates about purchasing it. He desperately needs this new car. His old car has almost 200,000 miles and the safety and maintenance issues cause him sleepless nights. Furthermore, if he doesn’t act by month end, he stands to lose at least $3,000 in discounts and incentives due to changing market dynamics.

And with this, we come to the point of my article today: though it’s often advantageous to be cautious and hesitate when making financial decisions quickly, it can also often be costly. And the reason some people are unwisely cautious is due to a lack of financial cushion. Why? Because cushion allows us:

  • The ability to buy at the right time
  • the ability to buy in bulk to save money long term
  • The confidence to take risks

I will explain these points further.

But before I do, I’d like to point out that the term “financial cushion” might be called an “Emergency Fund” by some other people. Both terms are fine. However, for those working on their goals, I’d like to add the term “Personal Venture Capital (VC) Fund” to the list. A Personal VC Fund is not just for emergencies, but also for opportunities  – to be ready to seize them when they come.

Caution is Costly

First off, let’s discuss caution and how to approach that natural feeling you get that makes you want to “pause” before making a decision. Caution proves to be a good tool when you don’t know the facts. If you are unknowledgeable, you should take time in making decisions. You should take care, to research and to understand better. Then make a decision from a point of “expertise.”

However, if you’ve done the research and you know you have a positive decision before you, you have to act. Now, it is true that financial worry can stifle smart research. Especially if making the good decision means making a timely decision! We don’t like to be rushed even though unnecessary caution causes missed opportunity deadlines!

Caution can not usually be an excuse if you have done the research. If you haven’t, then get to it! But if you have, and your worries are more about money (having a cushion), then you need to address that personal issue or the feeling of financial incongruence will eat at you forever. I will get to that in a bit. But first, if you have financial cushion, and have done the research, here are your benefits.

The Ability to Buy at the Right Time

The person mentioned above, he wanted a new Honda. he knows the model and style. And as I mentioned above, Honda had some nice incentives in place. However, due to recent tariffs, interest rate increases and increasing commodity prices, these incentives were going away. Of course some would think this a gimmick. But 25% tariffs, a strong move in rates and commodity charts I can look up with my own eyes tell me otherwise.

This fellow hesitated, and missed the incentives. Perhaps Honda will lower prices and take less profit in the future if these economic impacts force them to. But for now, they are not. The buyer, because he had little financial cushion, didn’t act and lost thousands. His caution and hesitation created a loss.

The Ability to Buy in Bulk

Mark Cuban, of all people, fired off the idea of buying in bulk as one of the main differentiators between haves and have nots in an interview on Real Vision. (it wasn’t the focus of the conversation, but a point he made during the interview).

I have observed people buying items like paper towels and toilet paper – one roll at a time. They often buy an inferior product at a higher price. Nothing advantageous to the consumer at all. And over time, this can costs hundreds of dollars – perhaps thousands over a decade. Therefore, if one doesn’t have financial cushion, they’re not going to have the confidence to spend $50 on bulk paper towels when they can buy a cheap roll at a dollar store for 78c.

Buying in bulk also applies to buying high ticket items like a car. Generally, paying a lot, even if it saves money over time, is difficult for someone worried about their money.

The Confidence to Take Risks – Your Personal VC Fund

Buying in bulk, buying better quality (but higher priced) items, and buying a car are all risky. If you don’t have financial cushion, you won’t feel comfortable committing money now and certainly not to another monthly payment.

But this concept goes beyond ‘buying stuff.’ How about the confidence to take positive steps in your life? How about investing in personal education, making an investment or starting a business. Yes we’ve all read about the young upstart with no cash who makes it big despite the odds. And that can happen. But did you know that the average age of an entrepreneur is not 22? It’s actually 42.

I’m sure some of these guys are hard up financially,  but I imagine that these founders are not dead broke and perhaps they’ve cashed out from corporate to pursue their personal dreams. In fact, I know people who have done this so it’s not a hypothetical to me. The financial cushion put them in position to go for their goals  and pursue what was important to them.

This is Financial Congruence, when your money is aligned with your personal values and goals. And it feels great to be there. And note that it doesn’t necessarily mean you are wealthy. Congruence can lead to wealth. It means being able to sleep at night on the choices we’ve made. How would you feel if you were 100% financial congruent?

Bottom Line – Build a Personal VC Fund and Make It Happen

The bottom line is they had some financial cushion in place, a personal VC fund, giving them confidence to take the chance. And that’s the lesson for us all. Do take chances in life, but put some of the odds in your favor first! Do whatever you have to do to get that cushion.

For many of us ‘first world’ people with first world problems, building our personal VC opportunity fund often means:

  • doing work you thought you were too proud to do to earn extra money
  • driving an ugly car (ever see the 1999 interview with Jeff Bezos driving his Honda Accord? He was already worth a ton at that point)
  • setting a GOAL to have that cushion so that you can be free to work toward achieving ______ and not putting it off to watch another GoT clip on Youtube (oops that’s me).

Don’t be too proud – be driven. Make it happen! And tell me in the comments below how you are building a financial cushion, or have done this. I would love to hear about something positive!


By the way, if you want to work on aligning your personal values and goals to your finances, considering working with Chris. Find out more HERE.


*Names and details changed for privacy

Photo source: Flickr