Knowing you have six months’ money to hand changes your mindset.
It creates emotional strength. If people smell fear, they also get a whiff when you are strong. Being around a table when you simply have to do a deal, makes you weak. But if you around the same table and you are strong, it makes you strong. People want to deal with confidence and not desperation.
The six months’ money could be in a saving account, it could be in shares that you can sell at a drop of a hat, it could be under your bed. But the idea is an emergency fund is there in an emergency. But it needs to be away from your day to day money, so you don’t get tempted to dip in. This money is to provide you with strength. It must not be used for anything other than what is designed for.
What this fund represents more than just the money, is the psychological difference it makes to you. You need to be brave in starting up your own business, but you can’t make brave decisions if you are to the wire financially. So being to the wire causes stress, and that mindset is not the best one for making smart choices.