Why 'opportunity' funds are the new emergency funds

Saving for the future becomes much easier when it's pegged to a specific event or goal, like travel.

You know your emergency fund is important to your financial well-being. In fact, it's a bit like flossing is to dental health. We know it's important. In fact, we know it is hugely beneficial. But do we do it? Well, no — or at least not like we should.

The emergency fund is a classic example of what has become known as the "knowing-doing gap." These are cases where know we should take action, yet we don't. That's because abstract thoughts about future emergencies — auto repairs or a leaking roof — are hardly compelling. An emergency fund, as vital as it may be, just isn't sexy.

If it's time for you to bridge the knowing-doing gap, and start future-proofing your finances, here's a smart trick to try.

Bridging the Gap

When it comes to an emergency fund, size matters less than habit. If you think that it's not worth starting because you can only spare a small amount, then you're kidding yourself. Small amounts regularly saved do mount up.

In reality, what prevents many people from saving is not a shortage of spare cash, but a lacking desire to build an emergency fund in the first place. After all, if you were really committed to saving, and prepared to fully audit your budget, you could probably find ways to trim your expenses a few dollars a week, or bring in some extra cash on the side.

But saving for an emergency fund is an inherently pessimistic and abstract thing. There is no conclusive rule to tell you how much you should have. You're saving for things that might never happen, and anyway, isn't just thinking about emergencies a little like tempting fate?

Opportunity Fund

The real barrier to saving an emergency fund, often, is in the mind. So instead of saving for an emergency fund, why not shift your thinking into a more positive groove? Decide instead to save an opportunity fund, so that you never need to fear missing an opportunity for want of cash.

How much more would you be motivated to save for some unknown opportunity that might present itself in future? Instead of saving as insurance against the stuff of nightmares, think about saving so you can grab an opportunity when it arises.

It is a whole lot easier (and more pleasant) to think about the opportunities that might come up in the future than it is to speculate about the disasters that might befall us. Imagine these scenarios, both with and without the financial cushion provided by your opportunity fund:

• Your dream job comes up, but the salary doesn't stack up. What do you do? Your savings give you choices.
   
• You have the opportunity to start your own business in an area you're passionate about, but starting out means living on less to begin with. Now you can weigh your options.
   
• You decide to study again, and need to flex your finances.
   
• Your best friend is about to embark on some pretty major travel plans, and you really want to join. Guess what? Now you can.
   
• You choose to drop hours at work to care for family, to travel, or to focus on a hobby. Having an opportunity fund means that you can consider different routes.
   
• You need (or want) to relocate suddenly. This could be for a good reason like a new job, love, or family. Don't feel stuck — your opportunity fund gives you the control you need to make the decisions that matter.

While an emergency fund feels like an exercise in damage limitation, your opportunity fund will feel like control, flexibility, and financial confidence. With those motivating factors on side, you are far more likely to make a savings plan and stick to it — even if it means trimming the spend a little elsewhere.

Naturally, once you have saved your financial cushion, it is there for you if an emergency should ever arise. But more importantly it's there as a comfort, an assurance that money worries do not need to be a reason to walk away from a great idea or opportunity. Doesn't that sound better?

This article is from Claire Millard of Wise Bread, an award-winning personal finance and credit card comparison website. This article first appeared at Wise Bread.