FEFP: Rethinking Emergency Funds for Federal Employees (EP89)

What if your six-month emergency fund isn’t enough? In this episode, John, Michael, and Tommy tackle the shifting financial landscape for federal employees in 2025. As government changes create uncertainty—think early retirements and layoffs—they share smart, strategic ways to prepare. You’ll learn how to build a tiered emergency plan, optimize your liquidity, and adapt your lifestyle budget in case your income suddenly takes a hit.

Listen in as they explore the practical use of accounts like Roth IRAs, HSAs, and brokerage funds during a crisis, as well as how to reposition your savings for better flexibility—without sacrificing long-term goals. You’ll hear real-world planning stories, relatable insights, and a candid look at what expenses to prioritize (and what to cut) when money’s tight.

Listen to the full episode here:

What you will learn:

What an emergency fund is. (4:14)
The importance of understanding how much money you need for daily expenses. (7:45)
How to start your emergency fund and what it should look like. (11:00)
What you need to know about Roth IRAs. (18:00)
Why you should start your Roth today. (27:00)
The benefit of having an emergency fund. (28:45)
How we approach our personal emergency funds. (33:30)

Ideas worth sharing:

“If we make the goal too big—if we make it $50,000 or $25,000 and you don’t have anything—you know how goals that are too big are… we just don’t even get started.” – Mason & Associates
“Don’t let your investments try to be your emergency fund.” – Mason & Associates
“It’s very rare that you become an overnight success in anything. It’s typically a series of good decisions and hard work.” – Mason & Associates

Resources from this episode:

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Read the Transcript Below:

Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.

John Mason: Hello, I’m John Mason. Welcome to the Federal Employee Financial Planning Podcast. Federal employees are going through an experience that we’ve never seen before. The current administration and the Department of Government Efficiency are impacting the lives of our clients and federal employees across the country.

In this episode, Tommy, Mike, and I discuss why the standard 6-month emergency fund isn’t enough, strategies to increase flexibility in your financial plan, how families can prepare for a VERA, a RIF or terminations, and what we do as financial planners and small business owners to protect our family and business during volatile times.

Unlike many content creators, we’re financial planners first, and we do this second, and each episode, we share real-life experiences from decades of helping real federal employees navigate the complexities of their benefits package and all areas of their financial plans. Mike, Tommy, welcome to the Federal Employee Financial Planning Podcast.

Mike Mason: Good to be back. Gonna be an interesting topic. As we always say, at the beginning of every year, it’s gonna be an interesting year and it always ends up being an interesting year.

Tommy Blackburn: Yeah, good to be here. Looking forward to the topic. And yes, Mike, I agree. We are rocking and rolling as always. Seems to always be the case. I think overall a lot of good but really looking forward to jumping into this topic today.

John Mason: And today’s March 3rd, 2025. Our audience knows we record a few weeks in advance. So a lot happening in the world. We know that as fast as things are happening, guys, we’re trying to put out relevant content, but it’s not instantaneous.

So hopefully everything we’re talking about in this episode should be long-term, good planning. I don’t think there’s anything we’re addressing today that’s like super time-sensitive. So we’re gonna talk about all of those things we mentioned in the introduction and it’s just so cool I think that we’re putting out this content so frequently to help families prepare.

And I read over the weekend that Reddit, which I really don’t know what Reddit is or how it works. I don’t have a Reddit account, but apparently, the Fed News subreddit is like one of the most popular Reddit threads or communities in all of Reddit right now with the turmoil and the amount of volatility that we’re seeing coming out of Washington, DC and across the country.

So I’m glad that there are real financial planners like us putting out content because federal employees are clearly looking for it to be like number one in these subreddit threads. So kudos to us. I think it’s very important what we’re doing.

Tommy Blackburn: Thanks for putting that comment out there about Reddit because as we were all chatting getting ready for the episode you mentioned Reddit when we were talking to each other, and I almost asked you like, what exactly is Reddit?

I have been there a few times, and so I think I understand it, but I haven’t been there enough to like really put my finger on it, so I just appreciate that you shared that as well. Just now, I’m not the only one that’s I’m not exactly sure what to make of it.

Mike Mason:Yeah, I don’t think I’ve read it.

John Mason: And full and fair disclosure to our audience, the three of us are not really fans of social media. I think we have various social media accounts because it’s the obligatory thing you do as business owners. And we have websites, we have social media accounts, but if we could only do YouTube and podcast, I think that would be where we live.

So we’re not really sure what all this social media stuff is, so hopefully there’s good stuff being shared across these various communities. Hopefully a lot of our stuff. Let’s dive right in. So let’s talk about first, what is an emergency fund? Let’s define that for our audience, and let’s also talk about the book rule on what a standard emergency fund should be.

Mike Mason: Unfortunately over almost 40 years in the financial planning business, many people fail to ever really create a good emergency fund. And maybe we’ve been a little bit at fault for helping federal employees believe that they shouldn’t necessarily have to hold to that emergency fund like private sector.

But long story short, an emergency fund is basically a power fund. It puts you in charge, instead of everyone else in charge, right? If an emergency happens, the credit card company’s in charge ’cause you didn’t have the money at the bank, making 2% or 3% to replace the air conditioner.

So what do you do? You end up barring it at 18% to 25% on a credit card. So a good emergency fund, standard rule of thumb for years has been six months of expenses. We’ve allowed people to look at a Roth IRA in the past, Tommy, as an emergency fund, because you can get back to your contributions without tax or penalty.

So six months of money, and we’ll talk about where maybe it should be. I won’t hog the mic, but six months of expenses as a minimum really puts you in a power mode.

Tommy Blackburn: Thanks, Mike. And would love to talk about some of the different accounts. I just want to pause, throw it back to John, and see what the direction you want us to pivot to from here.

‘Cause I know we’ve got a little bit of an outline, so I want to follow it. And I think another part of that is, do we even agree or what are our thoughts on this standard rule.

John Mason: Sure. So the emergency fund, like you said, Mike, standard rule, three to six months. I think we’ve largely been going, we learned that in college.

I think we’ve taught that throughout the years. I’ve been doing financial planning and the standard rule, they’re talking about cash and cash equivalence, so it could be CDs, bank accounts, money markets, maybe even like T-Bills or something, or Series I savings bonds, which, once you start getting into Series I, you’re out 12 months, so maybe that doesn’t even really count, but cash and cash equivalents, the issue that I see is that with the emergency fund, in my mind, $25,000 is still a good number.

We’ve been using $25,000 to 50,000 for a lot of our clients since 2010 when I started in the business and we were joking around before we hit the record button, that $25,000 is 2,500 cartons of eggs, whereas 15 years ago it would’ve been 5,000 cartons of eggs or 7,500 cartons of eggs, or X numbers of gallons of milk.

So $25,000 seems like a big number, but is probably inadequate, and I think a good exercise, which I know the three of us are constantly looking at our finances, maybe not monthly budget as often as we should, but really looking at your monthly expenses and deciding is $25,000 actually adequate for you?

Because the whole goal here is that we should be able to cover your living expenses, but what are those? And I think over time living expenses, you have needs versus wants and I’m not sure that the standard person out there really understands how many expenses they have and how much they need to have in a savings fund to actually pay for those.

Tommy Blackburn: Yeah. I wanted to jump back to I bonds for a second ’cause I agree with you that first year they’re not liquid, so we definitely need to, if we went into them, realized that, but also realize after a year they’re cash. Now there is a slight penalty, a reduction if you take ’em out within the first five years.

But that is liquid. Back that is US savings bond. So we would say about as safe as it gets in the world as we know it. So after a year, that’s certainly part of your cash emergency fund in our eyes. ’cause yeah, if there’s an emergency, you’re not gonna be worried about a three month penalty to take on them.

And as far as the expenses, at least as I think about it there’s a few ways I think we all do it. One is usually just set out what are my savings goals for the year? Make sure I hit those. That kind of begins to back you down into if I’m saving that amount, I’m probably spending this other amount.

So that’s a good way to back into it. And the other, like you said, John kind’s needs and wants, it’s usually pretty easy to start, at least in the beginning of that exercise, which is what’s my rent, what’s my mortgage? That’s a half too, that’s pretty predictable. Maybe it changes a little bit each year.

Or maybe it changes a lot, but it should be fairly predictable. And then some of your utilities are usually, you kinda have a good idea of where those and then even some of the streaming bills, the cell phone bills, some things are very repetitive for us with young kids. The school bills, if we’re sending them to daycare, preschool, anything like that.

Or even private school. You can have a layer of fixed expenses and you can add those up pretty quick. Maybe you can look at some of those like the streaming bill and say, this one could go if it needed to. Like that certainly doesn’t have to be here. And then from there, you probably need to start looking at your cash flow a little bit more to get a realistic check on that grocery bill.

I know. It is shocking how much it has changed over the past few years. Some of that is a growing family, so I have a hard time always wrapping my head around how much of this is the family is growing versus how much of this is we’ve been in an inflationary environment and some things have changed, but yeah, you should be able to get a good beat on it that way.

Mike Mason: And I think it’s important to make sure I guess we know who we’re talking to in this podcast because the people that become clients of Mason and Associates, they’re gonna have the things they need. They’re gonna have the million dollars or more… it’s a broad audience. A lot of federal employees are being affected. So I want to backtrack and just say, “If we don’t have an emergency fund, what’s the starting point?” Because if we make the goal too big, if we make it $50,000 or $25,000 and you don’t have anything, you know how goals that are too big are, we just don’t even get started.

So it’s a good time. Tax refunds, most people are gonna get a tax refund. Many of you have already spent it, but a starting point for your emergency money fund should be that tax refund. And then remember, you’re not saving to spend this. You are saving it for an emergency.

So remember that it’s not a save to spend. How frustrated were we when the government handed out checks to everybody, including active duty, military, and yes, federal employees who weren’t affected by Covid at all? And we were still doing radio then, and we talked about will you just use this to start your emergency fund?

And then when those checks hit, you couldn’t buy a TV set at Sam’s Club, could you? ’cause they were all sold out, so I think we want to talk about how it should look, but also help edge people over to how to get started in that. Because if you’ve already got it, then we’re preaching to the choir.

John Mason: Good points, greed, fear. We talked about that in the last episode where we were quoting Star Wars and how afraid you are and fear is the path to the dark side and et cetera. And I think a common mistake as it comes to cash is that people are a little bit hesitant to keep $25,000 $50,000 $70,000 $500,000 in cash because they’re afraid or they’re greedy.

They don’t wanna miss out on all this upside potential of the stock market. I. And in fact, they’re forgetting the fact that having the emergency fund, the money and cash allows you to stay invested, allows you to be more aggressive, allows you to do all of the right things. So whether it’s penny wise, pound foolish, or greed or fear is the path to the dark side.

We have to just be okay earning zero or inflation on our savings account money, because that’s the purpose of it, is to give you the flexibility and the freedom and the ability to do all the other things. Vacation, save, invest, private school. And then Tommy, you mentioned also the private school and the daycare and the food bills and all of these things, and I wrote down tier one, tier two, and tier three expenses.

So if I’m a federal employee right now, what I’m doing is I’m analyzing my emergency fund to see it. Is it adequate? Number two, I’m looking at my monthly bills. I’m using Rocket Money or whatever that is, or Dave Ramsey’s budget tool, and I’m looking at all of my expenses and I’m saying, okay, what can’t be cut?

That’s my floor. Then I’m gonna put expenses as tier one, tier two, and maybe tier three. So let’s say hypothetically you’re sending your child or grandchild to a private school. You’re gonna have a different view on education than the family next door. Maybe that’s a tier-one expense, like life throws you a curve ball.

We pull ’em out of private school, we send ’em to public school, and we save 10, 15, 20 grand a year. How do you value education? That’s up to you and your personal financial plan on whether that’s a first cut or a third cut. Food. For me, eating organic and what we put the fuel into our body is very important.

I’m not saying we would cut Carter’s education first before we cut our food bill, but that’s a decision that we’d have to make. Which one of these are we cutting first? And maybe if I’m a federal employee right now and I’m worried about the carpet being pulled out from under me, maybe I just go ahead and cut those tier one bills right now.

Maybe I just go cut those. Show me that I have the ability to cut that, beef up my savings beef up my emergency fund. Maybe we don’t need to go into tier two or three yet, but maybe we can at least make guys some proactive moves in tier one just to free up some cash flow.

Tommy Blackburn: I love it. Yeah, that’s exactly what I was thinking.

Not only just the mental exercise, but maybe this empowers you to bulk up the savings a little bit. Another one that kind of comes to mind for me as a move you could make is for many people doing Roth into TSP or 401k, it makes a lot of sense. Can be part of a sound strategy. I think I can get behind, Hey, I’m going to actually switch over to pre-tax.

I realize maybe long term I should be doing Roth, but I’m gonna take the tax savings that’s coming into my paycheck now and beef up my emergency fund to give me more power. I love what you said. It goes back to don’t ask. Don’t have something, be a Swiss Army knife, right? Like your investments be your investments, your insurance is your insurance.

Don’t try to marry those together. Same thing with your emergency fund. We have must have a tier of liquidity as we think about it. And we have those cash equivalents. That’s that confidence, that peace of mind. We don’t ask the investments to do that for us. Then we also know, okay, if things begin to get a little extreme here, what are my next places I go?

And maybe we had to take some risk in those other places. But those are usually a little bit of a more extreme circumstances. And so those honestly gimme a little bit of peace of mind too. It is gotta get pretty bad before I’m tapping my Roth IRAs for my emergency fund before I’m taking 401k loans.

But I know I have. Those available to me.

John Mason: That’s a great point, Tommy. Maybe Mike, you can hit on this. And I think we all collectively agree that in our opinion, six months of emergency fund is not enough, point blank is not enough, and we’ll redefine the traditional emergency fund as cash and cash equivalent.

So yes. The traditional six month of cash and cash equivalence is probably good, but Mike, I think we’d rather see listeners of this podcast and clients with access to maybe 12 to 18 months of total emergency fund assets. So six months of cash and cash equivalence, and then maybe another 12 months of liquidity on top of that somewhere else.

So Tommy already started talking about where else we could get our liquidity. What other accounts could we use as this like tier two and tier three emergency fund? I think we’ve already mentioned Roth IRA, but where else could we go if we had to go into month, I guess six through 18, we’ve already exhausted the first six, now we’re in the next 12 months. Where do we go next?

Mike Mason: Yeah, the standard would be a non-retirement brokerage account might be nice and if you’re looking at that as your 12 to 14 month, you start structuring it, if you’re moving along that way, you start structuring and you say, okay, I’ve got some long-term capital gains. I’d really rather not take right now.

But maybe you can reposition some of those assets into a bond portfolio that’s gonna generate some dividends. So that would be the first one. A non-qualified, not reach into a retirement account, remember we’re talking to federal employees.

If you end up retiring before 59 and a half because of these cuts, retiring and being 55 gives you access to your thrift savings plan. If you’re 59 now, or 58 and a half now, that 12 month could be your IRAs because a year from now you’ll be 59 and a half.

Tommy Blackburn: I love it. I wanted to go back to the Roth for just a second.

Just to clarify. When we say, like how we’re thinking about that, we’re referring to, for most people, the basis that you’ve put into it, so your contributions, because the rules are whatever comes out of a Roth IRA first, it’s what you put into it, which you’ve already paid taxes on. So that is a tax-free distribution.

It does not matter how long it’s been in there or your age. You can always take your contributions out at any point in time. And we don’t want to do that ’cause we want that money growing tax-free. But that’s where we’re saying with the Roth, we know we can get what we call basis, our contributions back.

No tax ramifications to it. Some other ones I was thinking about or an HSA, I know John, you and I are, I think all of us actually are big fans of HSA’s Health Savings Accounts and using those as an investment vehicle. We, if you can, our recommendation typically is don’t pay medical bills currently while you’re working and saving into that, save this as another retirement account.

If we get into a situation where we need some additional liquidity and we’ve saved those medical expenses, we’ve got complete tax free access to that HSA, at least to the extent we had medical expenses we’ve been sitting on. So that’s certainly another bucket of liquidity. I will say too, as we begin thinking about investments, we’ve alluded to it.

I think you need to mentally, Mike mentioned, structure it, that’s certainly one way of just say maybe I take some risk off the table, put it in a more conservative allocation so that I know it won’t have as much fluctuation. If you don’t do that, just realize, hey, I probably need to knock that account down mentally 40% or so.

If I’m gonna be a hundred percent stock and we’re in a bad situation. ’cause it could be, I lost my job, the market went down and that account is now 60% of what it was. That’s an extreme scenario for sure, but we just need to acknowledge if we’re not gonna put some defense in those investment accounts,

they could be down when it comes time to hit them, which is why we also have these tiers. Let’s have that cash so that we hopefully don’t have to take investments out at a bad point in time.

John Mason: HSA, love it. Absolutely love the HSA. Make sure that if you are following Tommy’s strategy, that if you’re not spending from the HSA, that you’re saving receipts so that you can reimburse yourself in the future.

Tommy, if you mentioned that and I blanked for a second definitely save those receipts because you can reimburse yourself at any point in the future. I wrote down greed and fear again and I think the financial planning industry or investment industry, influencers, people on TikTok, whatever it may be, have really done a disservice to clients or consumers because we preach we need to get the best return.

We need to max our cash, we need to get all the tax advantages inside of TSPs and 401Ks. And. It’s very easy as a financial planner or investment manager to encourage folks to max out their thrift savings plan or max out their TSP. We have an entire video on YouTube that says, “Don’t Max Your TSP.”

That’s more for spending decisions as you get close to retirement, but for you mid-career folks. Maybe we don’t max TSP, so we can build a Roth or IRA or we can build that non-qualified brokerage account. And yes, we’re gonna lose some tax advantages. Yes, we’re gonna lose tax deferral. Yes, we’re gonna lose tax-free potential distributions because we’re not doing Roth.

But what did we build? We built a tier of emergency fund that you didn’t otherwise have, and that’s okay too. We don’t need to have maybe a million dollars in a non-qualified account, but a hundred or $200,000 outside of TSP that’s accessible. What a wonderful place to know that you have access to those funds.

Greed and fear, again, can be a path to the dark side if we wanna just try to max TSP all the time and in turn we lose some liquidity. So it’s very important to think about that. Maybe reduce TSP bump up your savings. Also, if you are maybe mid-career and you didn’t start with the federal government, maybe you were military and had a military TSP, or maybe you were private sector and then went federal and you have a random 401k hanging out there, or a random IRA from a prior employer rollover, maybe you’re not going to be impacted guys by a VERA or a RIF right now.

Preemptively doing a Roth conversion, paying taxes on that money today could make sense, and in five years you would have access to your conversion basis without a 10% penalty. Interesting way to try to build another tier of emergency fund. Now, if life throws you a curve ball and you have to access it immediately, Tommy we know the government’s gonna charge you a 10% penalty if you don’t satisfy the five years.

So that’s another way maybe that we can build some emergency fund is through thoughtful conversions. But don’t forget there’s a tax liability when you do that.

Tommy Blackburn: I love it, John, and I had scribbled down, let’s get that five year clock started. Let’s get that Roth IRA opened and funded. It’s probably not even gonna come into play here, but we might as well get that solved.

And on the conversion, not only to your point of maybe we do one now while we think things are good, if we think it makes sense there, there’s some balance to be thought through there. But maybe if we’re unemployed for a while, if we’re in the position it definitely depends on the variables here. But maybe we do a Roth conversion when we are in a very low tax bracket all of a sudden.

Or to Mike was mentioning the non-qualified account that non-retirement account. Maybe we take some gains if we’re all of a sudden find ourself in a 0% federal capital gains tax bracket. So I think those are some things, oh, and this reminds me the 10% penalty. Very unconventional, not generally recommending this, but a thought is maybe a 10% penalty even on an IRA withdrawal is not the end of the world, particularly if we find ourselves in a low tax bracket.

Because maybe it’s 10% plus we’re in the 12% federal tech we’re at 22, which is probably what we were at when we were working. So it’s not necessarily, these are some, again, creative thoughts where you try to think through some situations. It’s okay, maybe I don’t let that fear get the better of me and I acknowledge the situation.

We don’t want these situations, right? Nobody wants to be in a long term unemployment. The other thing we have to think through here, and maybe it’s going too far, is that health coverage. Now for many of our clients that we’re gonna work with, they’re probably looking at a VERA or VSIP or retirement, some type of, they’re gonna carry their FEHB with them, but if you’re not in that boat, then health insurance is certainly a concern.

So we’ll have to be thinking through that as well. Do we have a spouse we can jump on? Or are we gonna be looking at the marketplace? And again, that’s income-driven, so some thoughts to be had there as well.

Mike Mason: Because we get into this and everything just starts rolling. You mentioned military that go to the federal government. Big mistake. If you roll your TSP, your military TSP, into your federal TSP, and especially if it were a Roth, so you don’t wanna do that. You want that Roth IRA because you don’t have the same flexibility with a Roth TSP.

And even if you’re not that situation, if you’re the federal employee and you decide to do your Roth inside TSP, we think that’s a mistake. If you qualify to front door fund a Roth IRA, that’s where you should be doing it. ’cause that’s the one that gives you the access that you want. We mentioned the 10% penalty and John, you were using tiers, tier one, tier two.

What if one of your expenses is your children’s college? And you are wondering how I’m gonna pay that? The 10% penalties waived if you use your IRA for college. And don’t fret about the people that say don’t use your retirement money for your child’s children’s education.

That advice is mainly for non-federal employees that don’t have pensions. Your pension is a big part of your overall success. So yeah, I was chomping at the bit. I could keep going, but I won’t.

John Mason: It’s five year rule. Start small, start now. That’s one of my favorite quotes from one of my RV YouTube channels, but today’s March 3rd, you have until April 15th to fund your Roth for 2024, and that would start the five year clock, guys, back to January 1st, 2024. So it’s a unique opportunity if this is released before April 15th, where you can get a 15-month jump on your five year clock. So think about that. Also, have a plan for if you need to access any of your money, what’s the man, what’s the tax rate going to be on that?

We need to know that in advance. For example, I talked to a nice lady today who took a hardship withdrawal from TSP, worried about all the chaos that’s going on, and wasn’t aware that TSP didn’t withhold state tax, wasn’t aware that the 20% mandatory withholding wasn’t enough, wasn’t aware that there’s going to be a 10% penalty on top of that.

A lot to unpack here, but let’s just go through a quick list of housekeeping. What accounts or assets can be used for an emergency fund? We’ve talked about that already, so here’s your action. Make a list of accounts and prioritize them. Tier one, tier two, or tier three, rank them. Make sure you understand the tax ramifications and have a written or documented plan for when life throws you a curve ball because it will, which account you’re going to access, how much taxes we have to have withheld, and just think about it all the way through if you’re mid-career.

We’ve talked about strategies like 5% into TSP to get the full match, save in your Roth, maybe then back to TSP, or then back to a non-qualified account. So it’s a good idea to still max these investments when you can, but not at the expense of having all of your liquidity. And we certainly don’t want folks living in fear.

And one of the best ways we can do that is having a good handle on what are our expenses, what could be cut, what’s required, and not required. And then when you have the emergency fund built guys cash and cash equivalents, and then the following tiers like we’ve outlined. Fear, it can still be scary, but it’s not a fear that is that basically tears you down and breaks you apart to where you can’t function. It’s like a healthy fear. It’s like, “Okay, I can start thinking about if I get RIF-ed or if I’m terminated, what would I do next?” I’m not thinking I can’t pay the bills for the next 12 to 18 months.

My mind is going to, “Do I start a new business? How am I gonna earn income?” It’s a different kind. It’s a healthy fear versus this like purely anxiety driven or maybe over the top fear, if that makes sense.

Tommy Blackburn: It’s empowered, right? That’s the best way I can think about it. You feel empowered, you feel confident, and it puts you in a position of power ’cause I was thinking the same thing, John.

You can be pretty aggressive once you’ve checked all the other boxes off and have a peace of mind there where it’s okay, I’m investing aggressively. If it’s in the market, maybe I’m doing something aggressive with the business or starting a new business. It’s a flexibility, it’s just an awesome place to be it gives you the power, as Mike was saying.

I guess another way is it puts it, you have the cards at that point, everything can still be scary, but you’re not operating primarily out of fear. One thing I wanted to mention too about some places to give us more arrows in the quiver, so to speak, is home equity line of credit.

I think we’re all big fans of that too. It is an opportunity fund in our mind. It also is another source of liquidity. If it’s needed, whether it’s an opportunity or it’s because something’s popped up that we weren’t ready for, don’t have to use that HELOC, but you might as well have it in place.

So that it just gives you more room to bob and weave with whatever comes your way. And I think I mentioned previously before, if we have a spouse that’s working, perhaps we can take a 401k loan from their 401k. It’s not where we’d want to necessarily go to begin with, but it’s again, trying to think through what are the different levers we can pull depending on the situation.

Mike Mason: Yeah, I’d like to just add that I’ve always been a big fan of cash. When we talk about cash, most people hear cash at the bank, which is what you’re meaning it, but I like a thousand dollars to four or 5,000 that I can put my hands on, immediately. So that’s a safe place, hopefully in a safe in your house where you can get cash when needed.

John Mason: I guess a closing thought, and I want to talk a little bit about what we’re doing individually and maybe as a business to give our audience an idea of how we’re managing our finances and how maybe they can do this as well, is that it’s we don’t want you to be paralyzed out of fear right now.

Hopefully, this is empowering you to audience, to set your emergency fund, get your ducks in a row. At the end of the day, I feel really good personally, like we’re going to Disney World soon and we’re gonna spend some money at Disney World. And if life throws us a curve ball, I know that’s an expense we just wouldn’t bite off next year.

So I feel really good about enjoying my money and having a travel budget and having some luxuries in life when it’s appropriate. But my mortgage is lower than the rent I was paying when I was 22 years old. And I’m living well below my means as far as it relates to my mortgage, and I’m completely cool with that because it gives me a whole lot of ability to spend money in ways that I wanna spend money, which is not on a house and it’s not on rent.

I know that’s a luxury that we have based on when we purchased, but by keeping your regular recurring expenses as low as possible and then having that next set of expenses be fun, it’s a lot easier to cut the fund than it is to cut the regular recurring expenses, and I think that’s where a lot of people, that’s why Dave Ramsey has a job.

People buy a hundred thousand dollars F-150 and they make 50 grand a year. That’s probably not where we need to be. We need to keep those expenses as low as possible. Then we can get maximum enjoyment out of the other funds. So what are we doing individually? How do we approach our emergency fund?

So three certified financial planners. Mike is 64, I believe, or will be 64 this year. I am 37, and Tommy’s 37, and I can just say that personally, I have 12 months in cash emergency fund, and then I probably have another 12 months of non-qualified brokerage account assets. That makes me feel really good.

Two years. Two years of what? I can prepare for. I do not overcomplicate my emergency fund. It’s all at my local bank that I like to bank with, and I don’t go after a whole lot of high interest bank accounts. I don’t use any online savings accounts because for me, the convenience of having, knowing where my money is and not having to work too hard to get it for emergency fund is my priority.

Once I get into tier two and three of my emergency fund, I’m okay going to things like Series I bonds or a brokerage account, but I don’t work really hard guys to make 0.2 on my checking account instead of 0.15. Yeah, I just call it good enough at some point. So I use a local bank. I keep 12 months of cash.

I utilize money market mutual funds. I have a non-qualified brokerage account. And if I had to go further from there, I would probably access my home equity line of credit next. And I would do everything possible to not touch my Roth, my Roth and Sarah’s Roth, even though I know those are there. What you’re not gonna hear from me is I don’t have a big cash value life insurance policy that I’m using to be my own personal banker like some other talkers and financial influences out there.

Mike Mason: Interesting guys. I get the 63-year-old perspective here.

So anybody that’s watching this, that’s watching any of our other podcasts. People have a default mechanism like success, overnight success of Mason & Associates. And you should know that what you’re going through now as a federal employee and possible layoffs is what we have gone through, or at least Ken and I for 40 years building a business.

So don’t look at us and say, yeah, your business was instantly successful. So yeah, John, you can have 12 months of cash. We got here, one step at a time. I’m fortunate at 63, all of my money is accessible. It’s just a matter of how much tax I want to pay when I access that money.

But I still have the brokerage account and cash and there was enough cash in that brokerage account to buy this beautiful river home that we have without having to sell, my house first. So it’s not all about an emergency. It’s sometimes it’s an opportunity fund, right? That we’ve talked about.

So put yourself in that position and don’t think that, oh yeah, you guys can get there. ’cause somehow or another you went from mailing postcard invitations to get people to come to your seminars, to a radio show, to a podcast. From maybe the beginning, making phone calls to people that didn’t even want to hear you, a hundred of them a day to get 10 people to say, yeah, we’ll talk to you.

So anyhow, don’t default to, “It’s easy for you guys” ’cause it wasn’t.

John Mason: Lifetime of good decisions is applicable to small business owners, federal employees, and everybody. It’s very rare that you become an overnight success in anything that you do. It’s typically a series of good decisions and hard work and work ethic to get there.

Mike, you mentioned all of your emergency fund assets that you have too. All throughout there, your variable universal life. Bobby’s variable universal life. There are some interesting, I know I picked on the cash valued life insurance policies, but you guys have some, and that’s there that would be accessible in case you need it.

And then even loans from those type of policies, you’d have the ability to take a loan on some of those. So we’ll throw there as another emergency fund or asset for you. Tommy, how about you?

Tommy Blackburn: Yeah, sure. I think pretty similar to you as I think about at least a year in cash. And we technically have more than that.

And part of that is I usually look at I want that amount of cash, probably more than that. Probably one to two years is where I mentally anchor around. But then I also take hey, what are my fun things coming up for this within a year? So vacations are pre-funded, should I say.

So to your point, those don’t have to happen. So if I found myself in a place, it could be that vacation fund, which I don’t have specifically earmarked, I just mentally know my cash and what it equates to. And that’s just cash and that’s now available to stretch that emergency fund further down the road if need be.

Unlike you, I think I do work a little harder to make sure I’m getting inflation on my cash from the sounds of it. Just based on what you were saying about keeping it at the local bank I keep enough in checking. Again, it’s based on our monthly cash flow and just my personal comfort level there.

So for us, that’s probably about 10K that I aim to keep in the checking account, just like that seems like plenty of room to let monthly bills and stuff flow in and out. Then everything else, I usually keep in a high-yield savings account at various banks, usually online banks. So I’ve been doing that for a long time.

I’m very comfortable with that and the ability to move cash from those back into the checking account. Didn’t have those Series I bonds which were liquid. I’ve since cashed those in and redeployed ’em into some higher interest rates. Have that non-retirement account like you’re talking about.

There’s certainly some liquidity in that or a lot of liquidity, but it is invested, so there’s a level of risk with it. HSA is out there. Let’s see, and we’ve got the HELOC, the home equity line of credit. That surprisingly gives me a great deal of comfort just knowing that arrow is back there if we need it.

And then if we really needed to, we could hit the Roth IRA basis as well as the 401k. My spouse works, so we would have access to her 401k assuming she was still employed. And even if not, we could start rolling things in IRAs and Roth IRAs and get access to that money again. And then I think, John, you want to talk a little bit too about as a business, right?

So there’s there’s kind of two sides to our financial plans, right? We have us as the individuals, but then we have the business that we have to take care of as well of, and they’re connected. So we have to be ready to step up if the business ever needs us. Needs and inflow, which is probably why we’re a little bit more conservative than many, because I think that’s always in the back of our minds.

But we’ve also structured the business pretty conservatively to where we have a reserve, we have that working capital and we plan out to be funded for quite a while. So the business maintains a healthy place and it all comes back to that confidence, that empowerment in us not living in a place of fear while we’re trying to guide a business and our clients and our families.

John Mason: So to your point, not only do we have an emergency fund for our personal accounts and our personal stuff, we also have an emergency fund for the business, basically, which is effectively it’s all the same. It’s just one emergency fund for our house and one emergency fund for the house that feeds our house, basically.

And there’s various strategies that we use there. And it doesn’t make me lose one bit of sleep. There was like one second last year where Tommy, you and I went to a mastermind group with other financial planners and we had more cash than everybody in the room. Still always mind maybe not going behind, but it was significantly more than what other financial planners were carrying.

And for a split second, it made me think I was nuts. And then I came back to what makes me feel comfortable in my financial plan. And I just decided they’re the crazy ones, not me and you. So we love those financial planners, but they live a different life and maybe have a different risk tolerance than we do.

So even doing this every day, we can get caught up in keeping up with the Joneses or being influenced by what other people are doing. So I think we’ve covered everything guys that we wanted to in this episode.

Tommy Blackburn:I think so.

Mike Mason: Yeah I would add just one thing there at the end, we always face, we talk about a stock market, possible, 40% drop.

Our income is generated through assets under management. So at any given point, a 40% drop to income here at Mason & Associates, if the market were to lose like that, and I’ll just remind you, John, during Covid. When the market dropped and we didn’t know what was gonna happen, we went to our employees before the government said anything about free money.

And we said, because of the way we’ve structured this business, you’re gonna have a job through this. Don’t worry about your livelihoods, you’re gonna have a job. So that’s why we don’t lose sleep over how much cash we might have.

John Mason: Something to be very proud of. Guys, thank you for another awesome episode of the Federal Employee Financial Planning Podcast.

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