A few weeks ago, we got served a lawsuit at the laundromat. Sounds terrifying, huh? It was, for the 45 minutes it took to get our employee to pick up the papers from the constable so we could review them.
We got sued not because we did something wrong, but because someone else owed someone else money. That debt somehow ended up connected to our laundromat, and we were being served legal papers over a business transaction we weren’t even involved in.
It was one of those moments where your stomach drops, not because I thought we were going to lose anything, but because I knew this was going to be a giant pain in the a**. Lawyers, paperwork, court, and spending money to deal with something that had nothing to do with us. But as I thought about it, I also realized I had almost zero concern about our finances.
I don’t know yet how much this will ultimately cost us, or how long it will take to resolve. But I know that whatever happens, it isn’t going to derail our family’s finances or the business. It’s an inconvenience. It’s going to take up some of my time. It’s annoying.
But we’re okay. And that got me thinking about the real purpose of emergency funds, cash reserves, and living below your means. We don’t build financial margin because we know exactly what emergency is coming. We build it because we have absolutely no idea.
Why Financial Margin Matters
A few years ago, when I was running my real estate business, I would have had a different reaction to getting sued. The lawsuit itself wouldn’t have been any less annoying, but the financial part of it would have felt very different. I would have immediately started wondering where the money was going to come from, what we would have to put off, or whether we would have to pull money from somewhere else to cover an unexpected expense.
Today, I don’t have to ask those questions. That doesn’t mean we’re wealthy enough that money doesn’t matter. It means we’ve spent the last year being very intentional with the money the laundromat has made to create the financial margin we need.
We keep cash reserves in the business. We maintain personal savings. We invest consistently. We try not to inflate our lifestyle every time our income increases. None of those things feel particularly exciting when you’re doing them. Saving another month of expenses isn’t nearly as exciting as buying an investment or buying another business. But when something unexpected happens, you get to see what all those boring financial decisions were actually for.
Emergencies are Inevitable
There was absolutely no way for us to predict that this was going to happen. I have such a tight hand on our budget and accounts that I try to be prepared for anything that is going to happen, and still this was completely unexpected.
These types of things will happen to you too. There can be a major repair, a business slowdown, a medical bill, a job loss, or a serious injury that keeps you from being able to work. You can plan for your finances perfectly and still have something come completely out of left field.
That is why I think financial preparation is less about trying to predict what will happen and more about building enough margin to handle whatever does. We have insurance for some risks, cash reserves for others, and investments and income that give us additional flexibility. This is also why we recommend things like disability insurance. You don’t buy it because you expect to become disabled. You buy it because you have no idea if you will.
The goal isn’t to prepare for every possible disaster. That’s impossible. The goal is to build enough financial resilience that when something unexpected happens, you don’t have to make a bad financial decision just because you are dealing with a bad situation.
You can’t prevent every emergency. But you can make sure that an emergency doesn’t automatically become a financial crisis.
Margin buys you options.
I love talking about how money gives you options. Personally, it frees me from feeling tied down to a particular schedule or job because of what we’ve built financially.
The same thing applies in business. The financial margin we’ve created gives us options for how to deal with problems like this. We don’t have to make a bad financial decision to solve an unexpected problem. We don’t have to sell investments at the wrong time, put everything on a high-interest credit card, or take out a loan just to get through the month. I don’t have to work 15 days in a row to pay for something unexpected, or sell our house and drastically change my kids’ lives.
If I want to take a $15,000 trip, I’ll gladly pick up some extra shifts to pay for it. But I’m not forced to pick up those shifts because something unexpected happened. There’s a huge difference between choosing to work more and having to work more.
We can actually just deal with the problem. And honestly, I think that’s one of the most freeing things money can do for you. It doesn’t prevent bad things from happening. It gives you the ability to handle them without allowing them to completely dictate what happens next.
Your Reserves Have A Job
We have had a few things come up at the laundromat recently that have tapped into our cash reserves. We have had some problems with the AC and had to get it looked at and repaired several times in the last couple of weeks. These are exactly the kinds of expenses that can be frustrating when you own a business, but they aren’t devastating when you have money set aside for them.
Our cash reserves aren’t just sitting around doing nothing. Their job is to absorb the unexpected so the unexpected doesn’t become a crisis. Cash reserves can do the same thing for you personally. They can pay for a car repair, a major house expense, or an unexpected medical bill. They can give you the ability to take time off work when your family needs you. They can keep you from having to sell investments at the wrong time or put an unexpected expense on a credit card. They give you peace of mind.
Conclusion
I have no idea how this lawsuit will ultimately turn out. Hopefully, it gets resolved quickly and costs us as little as possible. But regardless of what happens, I’m grateful that it is an inconvenience rather than a financial crisis.
That’s the quiet benefit of financial stability. You don’t always notice it when everything is going well. You notice it when something goes wrong. We can’t predict every emergency that will come our way. We can’t insure against every possibility, and we can’t save enough money to make every problem disappear. But we can build enough margin that when something unexpected happens, we have options.
That’s what all those boring financial decisions are for. Save some money. Keep some margin. Don’t spend every dollar you make. Protect your income. Build your business reserves. Invest consistently. You probably won’t appreciate those decisions every day. But someday, something will go wrong, and you’ll realize that the money you patiently set aside wasn’t just sitting there.