Long-time readers know that I enjoy talking about how to make your dreams come true. I truly believe that one of money’s best purposes is to help you build a life that makes your heart sing, one that puts a smile on your face. Prioritizing your spending in order to achieve your most important life’s goals significantly increases the odds that you’ll achieve the dreams you have for your life.
Today, I want to spend some time talking about the security side of money. You’ve heard me talk about emergency funds, sinking funds, and investment funds. Those are all very important too. But last week I heard about a new-to-me nickname for a cash security blanket. It’s called a SWAN account and it stands for Sleep Well At Night.
I was hooked.
Nothing new under the sun.
Sure, this is a new name for an old-fashioned idea. But it’s catchy and I like swans, so I’m going to talk about it in this post. The account’s purpose is in its name. A SWAN account is there so that you can sleep well at night. You get to decide how much you need in the account to achieve your goal.
If you don’t already have one, it’s very easy to set one up. Go to your bank and open a savings account. Maybe you eventually want to have $50,000 set aside to sleep well at night. That’s not an insignificant sum, and it’s rather intimidating to think of saving that much money all at once. Here’s the secret…
You don’t have to save it up all at once. You can set smaller savings targets that will eventually get you to your ultimate goal. Create mini-savings goals. Your first mini-goal could be to get $100 in there. When that’s done, set another goal for $300. The next goal can be $700. And so on and so on and so on until you hit your ultimate goal.
Guess what else? You also get to pick the amount of money that goes into you SWAN account from every paycheque. Obviously, the more you save, the faster you get to you ultimate goal of whatever amount you choose. Track your spending. Figure out if there are any non-essential expenditures that don’t bring you joy. If so, then resolve to not make those purchases in the future and send that money to your SWAN account.
Saving, not investing.
Notice that I’m specifically referring to saving this money. I’m not suggesting that you invest it for long-term growth. Your SWAN account is designed to be a safety net in case things go drastically wrong and you need to lay hands on money within hours. Your invested-for-the-future money resides in your TFSA, your RRSP, and your non-registered brokerage accounts. Money invested for your future needs to be left alone to do its thing so that it’s ready and waiting for you when you decide to retire. Hear me when I say that your invested money doesn’t get used except as a very last resort.
The SWAN account is strictly a savings account. Open a high-yield savings account and start stuffing it with cash. As always, use an automatic transfer from your paycheque to your SWAN account. Let technology do the heavy lifting for you while you’re out and about living life.
The SWAN account is the moat between your current circumstances and your invested funds. The bigger that account is, the less likely you’ll be forced to sell your investments to cover the cost of your necessities. It’s time to start building your moat. Continue to set mini-goals for yourself and do what needs to be done to achieve them. Eventually, you’ll have a nice-sized SWAN account and you’ll be sleeping like a baby once again.