Beyond Financial Independence

BeyondFI: Know Your Money: What is CACHE?

April 28, 2012 · Jay Bugg · Comments

In the BeyondFI method CACHE is the money that you have near instant access to. This clearly includes cash, your savings account, checking account and yes the money you can access on your credit cards. Many debt reduction plans would call this your emergency fund.

Rules for cache.

  1. Stop buying stuff you don't need. Financial Independence requires good money management. If you are still spending your take home pay on stuff you don't need you are not getting anywhere and likely you are going backwards. To be clear you need food, you do not need to eat out.

  2. Open and Fund a Savings Account. Savings account interest rates are near zero right now. You still want to open a savings account anyway. This will be a crucial step to proving to yourself that you can in fact save money. Look for an account with a low minimum balance to avoid all fees. Fund the account with $1,000 more than that minimum. So if you need a $300 to avoid fees start with a least $300 when you open the account and make it your goal to get to $1,300. This means in a true emergency you will be able to access $1,000 without paying any fees. If you are more conservative you can add 6 months of rent/mortgage payments here as a secondary goal.

  3. Responsible Use of Credit. You will need to start making use of your self control here. Having 5-10k in available credit is part of a healthy cache. Since savings rates are so low; to have $10,000 in cash earning at most 1% is inefficient. By having that same amount available on a credit card or other line of credit you have the option to use that money if your AC blows up, while still earning a decent return in the meantime. Have a bit of your hoard set aside to cover the full credit limit.

  4. Daily Purchases and Rewards Card. Get a card with a rewards program. I like cash back programs but others may enjoy travel points. Use this card for all of your daily purchases. This allows you to fully track your spending and effectively lowers your overall costs a small amount. be sure to pay all of the accounts that can be paid by credit card with out any fees to this account. So items such as a Netflix account would go here and if possible car insurance. THIS CARD MUST BE PAID OFF EACH MONTH.

  5. Pay Off All Other Debts. This is the last step to build a solid cache and the first step to financial independence. The only exception to this is your mortgage. Paying off your mortgage can be the last step before financial independence. Other than your mortgage you should not carry any balances on your credit cards, have zero personal consumer loans, and all cars should be paid for.  This kind of debt is a major hindrance to your financial independence in both fees and interest paid, but is also a major disruption to the cash flow going into your hoard. Also pay off your parents from the last time they bailed you out.

 

Once you have your cache setup you will be ready for the next step. Building your Hoard. The nice part about building your cache is you start to see how money attracts money. As you build your financial confidence, saving and investing become easier which allows you to save more and earn more on your money saved.


CommentsTags: BeyondFI method · Cache