Not sure about you, but we here at Savings Guide are sick to death of hearing people tell us to set aside a little bit of money each month to create an ‘emergency fund’.
Not that it isn’t a wise move; it’s just a little boring. The idea of having money set aside for emergencies will normally result in money set aside for your next big screen TV purchase – rather contradictory to what you had set out to achieve.
That’s why we have moved away from the term ‘emergency fund’ and started aiming to create a ‘war chest’. The phrase was used in the days of yesteryear to describe a set of funds tucked away by countries to fund upcoming wars, a protection chest if you will that would help defend, protect and battle any neighbouring countries advancement in war.
The reason we like the term ‘war chest’ is simple. We are well and truly at war with our finances – debt is the enemy, savings our friend, investing our weapon. This means we should look to create a war chest with enough funds to be readily prepared to strike when a great investment or opportunity to financially benefit arises.
This fund is ideal for opportunities, lucky breaks and once off scenarios that require money from you to make more money or do something fantastic.
How much should be saved in your war chest?
The amount you wish to save in your war chest is completely up to you. It is wise to note however that the sole purpose of saving money into a war chest is to have enough liquid funds to withdraw should a beneficial opportunity arise to start a business, invest or in some cases, use in an emergency or require immediate capital.
My personal goal is to save around $50,000. It seems like a nice round figure that would be very helpful if I did indeed ever need to take advantage of an opportunity. I am thinking ventures like starting my own business, buying an investment that is under-priced and things of that nature.
For some, the war chest is also doubling as an emergency fund should they ever lose their job or not have an income. For this reason I suggest you at minimum save three to six months of expenses in your war chest to cover such a situation.
Remember, this isn’t just a savings account. This is a weapon you are going to use to make you wealthier and better off than the next person.
What can you use your war chest savings for?
For me, it’s a way to safeguard myself. Should I no longer have a job – or better yet, resign from my job and start my own business, I will have $50,000 tucked away ready to invest in myself.
Some people like to call the war chest a ‘F.U. Fund’ should they ever get sick of their job and decide to quit. I will let you guess what the initials stand for.
Also, for me, If the stock market ever becomes ripe with opportunity again like it did in the GFC, I will have the capital to invest while everyone else is fleeing with the hope that it will one day rise (as it did post GFC) and see me make money.
Another option; If I am close to paying off my home loan, my war chest will cover the last big payment should I wish to finally get rid of it.
The ideas for using a war chest are endless and the feeling of having that much money set aside is amazing, powerful and capable of inspiring you to do great things to get ahead and make more money.
It takes you from feeling helpless about your future to empowered; this is after all how the well off become rich, they invest in good ideas and opportunities because they have the cash flow to do so.
Where should you keep your war chest savings?
Under the mattress won’t do for me. Instead I will opt to save my money in a combination of places.
Where you keep your savings however is totally up to you, however here is what I do (with an explanation as to why).
An account that offers high interest and requires me to ‘give notice’ of my intention to withdraw. The longer the notice period I accept, the more interest I will earn. I opt for this account because I have a history of spending my savings when I can easily access them; putting the majority of my money into a notice saver means I have to wait at least 30 days to access the money (which is still ideal for striking on opportunities).
Amount I save inside the notice saver? 60% of my war chest.
I also like to have a bulk standard term deposit with a bank. I do this because it also locks the money away for a minimum of 30 days and I set it to automatically rollover to a new term deposit after this period.
I can easily break the term deposit if I need the money fast but until then, it earns good interest, cannot be easily withdrawn and rolls itself over after each period ends.
Amount saved inside a term deposit? 20% of the war chest.
High interest savings account
My high interest account is the ING DIRECT Savings Maximiser. I love this account and use it to store a portion of my war chest as I can easily add to it on a regular basis.
Not to bore you too much, but basically I have a weekly grocery budget that I have to spend and if I don’t spend it all at the checkout on a given week, I transfer the leftover money into my war chest.
Amount I save inside my high interest account? Around 10-15% at any one time.
Home loan offset account (actually it’s a redraw account)
Probably the smartest place I should keep my savings is the home loan. While I don’t earn any interest, I will save myself a heap of interest.
Never the less my war chest strategy is about staying motivated and disciplined which means my mixed account strategy is a must (for me).
I tend to pay slightly extra per fortnight to grow my mortgage redraw account war chest. This means I set my repayments slightly higher (normally around $20-$50 extra, per payment) and simply set and forget.
A great way to boost my war chest by about $1,300 a year. The redraw war chest only ever holds around 5% of my total war chest saved.
Now you know what a war chest is
The big question I have for you is this; are you ready to start a war chest?
What opportunities are you going to miss out on by not having money set aside?