Importance of an Opportunity Fund

I spend a lot of time discussing the importance of having an emergency fund.  The Golden Rule is that you should have at least 3 months of living expenses saved for a rainy day.  You never know when you may need it; your car explodes, you lose your job or any other sort of unexpected, unplanned for situation which may occur.

An opportunity fund is similar to an emergency fund in that you are preparing for the unexpected however, instead of saving in preparation of all of the negative things that you may encounter, an opportunity fund prepares you for all of the positive things which may present themselves.

Have you ever been presented with a great opportunity but weren’t able to capitalize on it because you didn’t have any spare money available at that moment?  Sometimes opportunity comes knocking so it is best to be ready for it.

Unlike an emergency fund where it is recommended that a person have at least 3 months of living expenses saved, putting a number on an opportunity fund is a little more difficult.  It is important that a person know what their goals are and prepare accordingly.  Whatever your goals, figure out what they will cost and begin stashing away some spare money into your Opportunity Fund.  As you save, you may find something which is better than what you had in mind.  Giving yourself a cushion of “just in case” money allows for greater flexibility and gives you options.

I took advantage of my opportunity fund when I purchased a new bike the other day.  I allowed myself to use the money which I had saved up to capitalize on a good deal.  Had I not had this money saved, one of two things would happened.  The first is that I would have had to pass up the opportunity of getting a bike at a good price.  In the case of buying material possessions having to pass on making a purchase probably isn’t such a big deal, but having to pass on something like a friend inviting you on a trip to China for a couple of weeks…that is a great opportunity, and something that would be difficult to miss out on.

The other option I would have had is that could have used my credit card.  Using plastic is so common that most people wouldn’t even think twice about whipping out their card.  They would continue to make the minimum monthly payment until they die while the real cost of what they had purchased would never even be so much as a passing thought.  Using a credit card to pay for something I can’t afford has become something which I will no longer do to myself.  Just thinking about going into credit card debt again makes me sick to my stomach.

Having an emergency fund is one the first stepping stone towards creating financial security.  An opportunity fund is something of a cushion to prevent you from tapping into your emergency fund in case you find yourself in an “emergency”.  Sometimes we struggle with defining what an emergency fund should be used for.  Buying a bike because it is deeply discounted is probably not an emergency, but it is a good opportunity!