Q&A: We Have $80K in Cash and Want a 1–2 Year Sabbatical. Is It Enough?

Paula Pant (0:00)

Joe, what are your financial priorities?

Joe Salcihai (0:03)

Financial flexibility, being able to pick up and go whenever I want. My daughter is getting married next year.

Paula Pant (0:11)

Congratulations. Wait, do you like him?

Joe Salcihai (0:14)

That's the question, right? He's fantastic.

Paula Pant (0:16)

Excellent. Well, then congratulations. Yes.

Joe Salcihai (0:19)

So, yeah, which is another reason. So liquidity right now is the name of the game.

Paula Pant (0:24)

Oh, excellent. All right. So liquidity, travel, and daughter's wedding.

Joe Salcihai (0:29)

Yeah. And because it's in June, like it's all like, how am I going to have money available when I need it right now?

Paula Pant (0:34)

Okay. So a couple of different buckets. And then, of course, retirement is always looming on the horizon.

Joe Salcihai (0:39)

Never for me, but definitely for Cheryl. Nice.

Paula Pant (0:42)

All right. Well, we are going to field a question from someone who's wondering about how to balance a whole bunch of different financial priorities, especially when there are, and this is your favorite topic, Joe, different timelines.

Long-term listeners know what we're referring to. It's timeline is Joe's favorite word.

We're also going to field a question about Roth IRAs, and we're going to answer a question about the role that politicians play in our economy, our money, the role of political leaders. Welcome to the Afford Anything Podcast, the show that knows you can afford anything, not everything. This show covers five pillars, financial psychology, increasing your income, investing, real estate and entrepreneurship, acronym double I fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode-ish, I answer questions from you, and I do so with my buddy, the former financial planner, Joe Salcihai. What's up, Joe?

Joe Salcihai (1:42)

Well, speaking of Cheryl, she told me I need to smile more.

Paula Pant (1:46)

Yeah?

Joe Salcihai (1:46)

And I said to her, I'm like, you're the one that said we wanted a serious relationship. No.

Yeah, it's sad.

Paula Pant (1:55)

With that, we go to our first question, which comes from Anonymous.

SPEAKER_3 (2:00)

Hi, Paula and Joe. Thank you so much for all the work that you put into producing your shows. They have supercharged my financial journey, and it all began when I first stumbled across Afford Anything. So many, many thanks for all your hard work. I have a couple of questions for you both. Firstly, how would you define the difference between A, an emergency fund, B, sinking funds such as for a new laptop, C, saving for something in the medium term, like a career break or a big trip, say within the next two years? How would you think about and treat these pots differently? And is there a defined line between them or an overlap we should think about?

On top of this, I've heard some people replace the term with an emergency fund with an opportunity fund, which adds another dimension.

Secondly, and in the same vein, it would be very easy to prioritise immediate or short-term wants and needs over the long-term ones, meaning that a big trip or early retirement could never quite get funded if we're focused on the short-term. So how would you go about creating a structure to decide how to apportion discretionary money? How should someone choose which pot or goal to focus on first, or which should get the biggest slice of the contributions, or should each pot be funded equally? As an example, I'm based in the UK. I'm 42 My defined contribution pension, which is similar to your 401Ks, can be accessed from around age 57

With my current contributions, I expect to have enough money to retire at 64 And let's say for now that I'm okay with that age. Let's say I have an eventual goal of having eight months of essential spending in an emergency fund, which is adequate for my situation. I currently have four months of emergency fund built. I would like to start funding my other goals, such as a career break, travel, maybe future improvements to my home, etc. That sort of thing, alongside building my emergency fund. Can I start to fund those other pots? Or should the emergency fund be fully funded before any of the other pots receive a penny?

Once the emergency fund is taken care of, at which point should I pivot back to bringing my retirement age forward? Should I really be worrying about the difference between retiring at 60 versus 64 when there's two decades of adventures to have before I reach that point? You can probably hear I'm getting a bit knotted up with trying to balance all of my goals with different time scales of differing magnitudes, with the flexibility of having cash savings versus the growth of investing. So any clarity you can give would be very much appreciated. Many, many thanks from Anonymous from Across the Pond.