Tag: parachute money

  • Furloughs Show Why You Need Savings and Parachute Money

    Furloughs Show Why You Need Savings and Parachute Money

    Making headlines this week, the federal government shut down, resulting in hundreds of thousands of federal employees being furloughed.

    When someone is furloughed, he doesn’t receive a paycheck. Even if that person eventually receives backpay, furloughs can be a huge problem for those individuals.

    Why?

    Because most people, even high-earners, live paycheck to paycheck.

    When you’re furloughed, money stops coming in. But, money keeps flowing out.

    The mortgage still needs to be paid.

    The kids still need to eat.

    The credit card balances are still due.

    As reported by CBS News:

    But even federal workers who eventually receive back pay can suffer during a shutdown, as many of them live paycheck to paycheck, [Dan Koh, former chief of staff of the Labor Department] added.

    “Even if you are entitled to back pay, a lot of people can’t go even a couple of days without their regularly scheduled paycheck,” he told CBS News. “If you have to pay your subway fare, for gas, if something breaks in your home, and you’re not getting paid, it places extreme stress on government employees,” he said.

    So, what can we do to help protect ourselves from furloughs or any other sudden loss of income?

    We can protect ourselves in two ways.

    First, we can protect ourselves with an emergency savings account.

    Second, we can protect ourselves with parachute money.

    For the ultimate protection, we can have a fully-funded emergency savings account and parachute money.

    Let’s take a look at exactly what that means.

    person using MacBook reflecting that the bills still need to be paid when you are furloughed, which is why emergency savings and parachute money are so important.
    Photo by Austin Distel on Unsplash

    Protect yourself from a sudden loss of income with an emergency savings account.

    The first savings account you need is commonly referred to as an emergency savings account. This is your ultimate security blanket for whatever life throws at you.

    For example, if you are furloughed and lose your source of income, your emergency savings will keep you afloat until you’re working again.

    The idea is to use your savings so you don’t have to pull from your long-term investments.

    Your emergency savings is not just for when you get furloughed or lose your job. Your emergency savings will also protect you in times of emergency (brilliant, huh?), like unexpected medical bills or expensive home repairs.

    The idea remains the same: instead of pulling from your investments, you will have cash available in your savings account to cover your needs.

    Aim for 3-6 months of Now Money saved for emergencies.

    Aim for building up 3-6 months of your Now Money saved in a dedicated emergency savings account.

    In your Budget After Thinking, Now Money represents the consistent, reoccurring expenses that you need to pay every month to take care of yourself and your family.

    Since you will only be using this money in times of emergency, you can, and should, forego some of life’s luxuries until you get back on track.

    The same is true for fueling your Later Money goals. Take a pause until you sort out whatever it was that caused you to spend your emergency savings in the first place.

    While your emergency savings account is your first line of defense when you are furloughed, I prefer having an extra layer of protection.

    I refer to this additional protection as Parachute Money.

    What is Parachute Money?

    Parachute Money is one of my favorite concepts in all of personal finance.

    The analogy goes like this:

    Pretend your life is like flying on an airplane.

    For whatever reason, you decide you need to get off this airplane. Maybe conditions outside of your control have forced you to jump. Or, maybe you’ve decided that it’s time to take control and make a change.

    Either way, you’re ready to jump. 

    All you need is a parachute.

    You have a choice between the only two parachutes on the plane.

    The first parachute has only one string (or line) connecting the canopy to the harness . You think to yourself, “This doesn’t seem very safe. What if that one string breaks? That would end very badly for me.”

    Then, you look at the second parachute. 

    The second parachute has 10 strings. You say to yourself, “OK, this one looks much safer. If one string breaks, the parachute still has nine other strings to keep me safe. Even if something goes wrong with one or two strings, I would glide safely to the ground.”

    It’s obvious which one of these parachutes to choose, right?

    OK, cool.

    But, what does a parachute have to do with money?

    Each of your income sources is like a string on your parachute.

    The central idea of Parachute Money is to create multiple sources of income so you are not beholden to any one source. 

    Picture each source of income as a string on your parachute. The more strings on the parachute, the stronger it is.

    With Parachute Money, if one of your sources of income dries up, like when you are furloughed, you are more than covered with your other income sources.

    Of course, the more sources of income you have, the stronger your personal finances are.

    Parachute Money includes your primary job, any side hustles, any income generating assets, and your emergency savings account. It also includes the income of your significant other, if you share finances.

    The key to Parachute Money: protect yourself with as many investment and income sources as you can.

    That’s why in addition to my primary job as a mesothelioma attorney, I invest in the stock market, own rental properties and am an adjunct law school professor.

    It is not easy to maintain an emergency savings account of 3-6 months.

    Having 3-6 months of emergency savings is a wonderful achievement. It takes time and discipline to build up that level of savings.

    Personally, I’ve struggled to accumulate a sufficient emergency savings account.

    It’s not that I have a low saving rate.

    It’s that I’ve chosen to prioritize investing in real estate for the past seven years. Whenever I had enough money saved up for a down payment, I bought another property.

    Admittedly, this was a risky strategy.

    That’s why I do not recommend this approach for most people.

    Instead, for just about everyone reading this, I would recommend you build up your emergency savings account before moving to other financial goals.

    a close up of person playing a board gam ereflecting that the bills still need to be paid when you are furloughed, which is why emergency savings and parachute money are so important.
    Photo by Yuri Krupenin on Unsplash

    Did you notice that I said “just about everyone reading this”?

    That’s because I think people who are protected by parachute money have earned the right to take more risks at the expense of their emergency savings.

    Let me explain.

    If you have parachute money, you can get away with a smaller emergency savings balance in the short run.

    I was comfortable underfunding my emergency savings account in the short run because I had a strong parachute with multiple income streams.

    As I mentioned, my wife and I were both working as attorneys and had various income streams. If one of our income streams dried up, such as during a furlough, we would have been protected by our other income streams.

    Because of these multiple income streams, we were comfortable taking on the risk of having a low emergency savings balance.

    If you are in a similar position and have multiple streams of income, you may also feel comfortable with a smaller emergency savings balance.

    From where I sit, you’ve earned the right to invest your money rather than letting it sit in a savings account. If that’s your choice, I wouldn’t blame you. I made the same choice.

    That said, I would not recommend you shortchange your emergency savings in the long run. While it’s OK to temporarily prioritize other investments, I still believe that an adequate emergency savings account is essential to a healthy financial life.

    That’s why I am now focused on building up my emergency savings instead of acquiring more real estate. I’ve reached a good place with my investments. Now it’s time to focus on protecting my family.

    I think of it like this: my parachute is otherwise very strong between my primary job, my adjunct teaching job, my rental properties, and my other investments.

    The one string that I need to add is a sufficient emergency savings balance. That’s why building up my emergency savings will be my top money goal for 2026.

    When you combine emergency savings and parachute money, you are as protected as possible.

    The ultimate level of financial protection comes from having an emergency savings account and parachute money.

    You are protected in a variety of ways if one of your income streams dries up.

    If you haven’t prioritized an emergency savings account or developing parachute money, let the recent government shutdown serve as a reminder of how important these concepts are.

    Whether you are in the tech industry or an attorney or a consultant, there’s no guarantee that your job will last forever.

    The overall economic outlook is hazy at best right now. Ask five “experts” what the economy will look like in two years and you’re likely to get five different answers.

    It’s up to each of us to build in multiple layers of protection in our financial lives to avoid disaster if our primary source of income dries up.

    Do you have an emergency savings account?

    How strong is your parachute?

    Let us know in the comments below.

  • How to Think About Investing in Both RE and the Stock Market

    How to Think About Investing in Both RE and the Stock Market

    Let’s say that you have $200,000 that you want to invest.

    Up to this point, all of your investments are in the stock market, mostly through tax-advantaged retirement accounts like a 401(k).

    However, you’ve recently started thinking about buying your first rental property.

    You have an important question to sort through:

    Should you buy your first rental property or just keep investing in the stock market?

    This is a common dilemma for all real estate investors, not just people thinking about buying their first rental property. Personally, I’ve been thinking about this question quite a bit lately.

    The way I see it?

    Why not do both?

    Why not build your overall investment portfolio to include both stocks and at least one rental property?

    Today, we’ll explore why you may want to invest in the stock market and own rental properties.

    If you’ve been on the fence about buying your first rental property, this post will help you think about why it may be a good idea.

    Real estate is my favorite asset class.

    It’s no secret that real estate is my favorite asset class. Without my four rental properties, my journey to financial freedom would look much different.

    I’m confident that real estate will remain a powerful asset class moving forward.

    That’s because no matter how much the world changes with AI, quantum computing or any other new technology, I know one thing will always be true:

    People will always need a place to live.

    At this point in my life, I know that I’ll never become a brilliant coder or software engineer solving the world’s hardest problems.

    But, I can provide the geniuses a place to live.

    That’s why I’m comfortable with the majority of my net worth being in real estate right now.

    By investing in rental properties, I can make money in four different ways:

    1. Rental property cash flow is king.

    With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses. 

    For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

    If your present day expenses are already covered, you can use your cash flow to fund additional investments. 

    That might mean buying another rental property or investing in another asset class, like stocks.

    2. Long-term wealth through appreciation.

    Appreciation simply refers to the gradual increase in a property’s value over time. 

    While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

    Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

    To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

    3. With rental properties, other people pay off my debt.

    When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

    However, I do not pay that debt back with my own money. 

    Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

    I then use those rent payments to pay back the loan.

    As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

    When my equity in a property increases, my net worth increases. 

    4. Real estate investors earn massive taxes benefits.

    When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

    However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

    Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

    With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

    Yes, you read that right.

    I’ll say it again, just to be clear:

    Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

    Even though I love owning rental properties, I still invest in the stock market.

    While there are certainly real estate investors out there who are 100% committed to real estate, I’m not one of them.

    Even with my passion for rental property investing, I have a significant portion of my net worth in the stock market.

    For one reason, I enjoy having some totally passive income streams. Compared to being a landlord, there is essentially zero work involved in being a passive stock investor.

    For another reason, I see the value in having multiple, diverse streams of income to help protect me against life’s uncertainties.

    Plus, like many of you, my investing journey began with my employer-sponsored 401(k) plan.

    401(k) investing is easy and relatively straightforward. With automatic contributions from my paychecks, I don’t even need to think about funding my account.

    As a W-2 employee since 2009, without even thinking about it, I’ve invested regularly in the stock market and enjoyed the benefits of compound interest.

    As my career progressed and my family grew, I added investment accounts to my portfolio.

    Besides my 401(k), my favorite investment accounts include a Roth IRA, 529 college savings accounts for my three kids, and a Health Savings Account.

    In conjunction with my rental properties, I view each of these different investments as part of my overall strategy to reach financial independence.

    Combined, I refer to these different investment and income streams as Parachute Money.

    Reach for the sky. Sometimes normal is too boring. invest in both real estate and the stock market for a safe landing with Parachute Money.
    Photo by Vlad Hilitanu on Unsplash

    What is Parachute Money?

    Parachute Money is one of my favorite concepts in all of personal finance.

    Pretend your life is like flying on an airplane.

    For whatever reason, you decide you need to get off this airplane. You decide to take control and make a change. You’re ready to jump.

    All you need is a parachute.

    You have a choice between the only two parachutes on the plane.

    The first parachute has only one string (or line) connecting the canopy to the harness . You think to yourself, “This doesn’t seem very safe. What if that one string breaks? That would end very badly for me.”

    Then, you look at the second parachute.

    The second parachute has 10 strings. You say to yourself, “OK, this one looks much safer. If one string breaks, the parachute still has nine other strings to keep me safe. Even if something goes wrong with one or two strings, I would glide safely to the ground.”

    It’s obvious which one of these parachutes to choose, right?

    Why is having Parachute Money important?

    The central idea of Parachute Money is to create multiple sources of income so you are not beholden to any one source.

    Picture each source of income as a string on your parachute. The more strings on the parachute, the stronger it is.

    With Parachute Money, if one of your sources of income dries up, you are more than covered with your other sources.

    Likewise, the more sources of income you have, the stronger your personal finances are.

    Parachute Money includes your primary job, any side hustles, any income generating assets, and your emergency savings account. It also includes the income of your significant other, if you share finances.

    The key to Parachute Money: protect yourself with as many investment and income sources as you can.

    That’s why I own stocks and own rental properties.

    Should I buy a rental property or stick with the stock market?

    Lately, I’ve been asking myself this very same question, “Should I look into buying a fifth rental property? Or, should I invest that money in the stock market?”

    There are certainly lifestyle considerations that go into this question beyond just the strength of the investment on paper.

    For example, owning rental properties means taking on a job. On the other hand, investing in the stock market is mostly passive.

    If you’re not ready for the job of being a landlord, then you should stick with investing in stocks.

    Setting lifestyle considerations aside, we all have limited dollars available to invest. And, we work hard for those dollars.

    When we choose to put those hard-earned dollars to work for us, we want to make sure we’re getting a good return on our investment.

    It’s hard enough deciding where to invest your money once you’ve decided on the asset class. Take real estate, for example.

    Even if you know you want to buy a rental property in a specific area, there might be hundreds of potential properties available.

    Picking the right property is not easy and requires some careful analysis.

    How much more difficult does the decision become when you’re not even sure if you should invest in real estate or invest in the stock market?

    That decision can start to feel overwhelming.

    The perfect landing with a parachute indicating the importance of having parachute money through real estate and the stock market.
    Photo by Ali Kazal on Unsplash

    Deciding between various asset classes can feel overwhelming.

    With so many investment choices out there, it can be difficult to choose where to invest your money. That’s why it’s useful to have a way to compare one type of asset class to another.

    Then, you can consider investment opportunities in different assets classes and make informed choices on where to invest.

    Fortunately, we can use two simple metrics to help with this analysis:

    1. Cash on Cash Return on Investment (CoCROI)
    2. Return on Investment (ROI)

    Real estate investors have long used these two metrics to decide if a potential property is a good deal compared to investing in the stock market.

    In our next post, we’ll take a close look at each of these metrics. We’ll learn how each of these metrics can help you compare a rental property investment to typical stock market returns.

    Don’t worry if math is not your favorite thing.

    These two numbers are easy to calculate with an online calculator. The key is to make sure you understand the underlying principles and variables that go into the calculations.

    Are you comfortable investing in rental properties and the stock market?

    I like to invest in rental properties and the stock market to protect myself from economic and life uncertainties.

    I don’t want to be all-in on only one asset class.

    So, I view my rental properties and my stock investments as parachute strings working together to protect me should my airplane start going down.

    Because I’m comfortable investing in both rental properties and the stock market, I need a way to help choose between options across those asset classes.

    In our next post, we’ll learn how to do just that.

    Do you invest in the stock market and in rental properties?

    Which asset class did you invest in first?

    Is part of your reasoning for investing in both asset classes to add layers of protection to your overall finances?

    Let us know in the comments below.

  • Big Decisions are Easier with Parachute Money

    Big Decisions are Easier with Parachute Money

    Pretend your life is like flying on an airplane.

    Maybe you feel like your airplane is a fighter jet, moving too fast to enjoy the ride. Maybe your airplane is a small regional carrier, boringly flying back and forth between the same two airports.

    For whatever reason, you decide you need to get off this airplane. You decide to take control and make a change. You’re ready to jump.

    All you need is a parachute.

    You have a choice between the only two parachutes on the plane.

    The first parachute has only one string (or line) connecting the canopy to the harness . You think to yourself, “This doesn’t seem very safe. What if that one string breaks? That would end very badly for me.”

    Then, you look at the second parachute. This parachute has 10 strings. You say to yourself, “OK, this one looks much safer. If one string breaks, the parachute still has nine other strings to keep me safe. Even if something goes wrong with one or two strings, I would glide safely to the ground.”

    It’s obvious which one of these parachutes to choose.

    This situation illustrates what I believe is one of the most empowering concepts in personal finance.

    It’s what I call “Parachute Money.”

    Before we move on to our next core personal finance topic, credit and debt, let’s take a few minutes to discuss this powerful money concept.

    What is Parachute Money?

    The central idea of Parachute Money is to create multiple sources of income so you are not beholden to any one source.

    Parachute Money includes your primary job, any side hustles, any income generating assets, and your emergency savings account. It also includes the income of your significant other, if you share finances.

    With Parachute Money, if one of your sources of income dries up, you are more than covered with your other sources.

    Picture each source of income as a string on your parachute. The more strings on the parachute, the stronger it is. Likewise, the more sources of income you have, the stronger your personal finances are.

    Note that multiple sources of income does not have to mean multiple jobs. Even with one job, you can still pursue additional, or stronger, parachute strings.

    Let’s say you earn a salary and also could earn commissions or bonuses. Each one of those income streams could be another string in your parachute.

    Or, you could prioritize boosting your emergency savings even more than you normally would. You might even consider a separate savings bucket called “Parachute Money.” Besides boosting your savings, you could also focus on passive income streams, like investing in dividend stocks.

    The central idea remains the same. Protect yourself with as many income sources as you can.

    Think of Parachute Money as a way to visualize financial independence.

    Think of Parachute Money as a way to visualize what financial independence really means.

    Parachute Money empowers you to confidently make big life changes. When you have Parachute Money, you are financially free to control your life, not the other way around.

    Parachute Money is all about your intentional decisions. It’s for when you’ve decided, on your terms, that you’re ready to make that big change in your life. You’re excited to take matters into your own hands, but you don’t want to disrupt your entire life in the process.

    To return to our airplane analogy, you could stay on the plane if you wanted. Nobody is forcing you to jump. But, you’re ready for something different. And when you do jump, you want a parachute that will help you land as safely as possible.

    That’s what Parachute Money can do for your life. It allows you to make that leap while landing gracefully.

    You could say it out loud like this, “I have Parachute Money. I am financially independent because I am not beholden to any single source of income. If one source of income goes away, because I’ve decided it’s time for a change, my other sources of income will protect me.”

    Parachute Money is more than just emergency savings.

    Parachute Money is more than just a bank account. We’ve talked about how an emergency savings account is the first savings account that everyone needs.

    An emergency savings account is part of your Parachute Money, but there’s more to it.

    Recall that an emergency savings account is what you turn to when life dictates your choices. If you unexpectedly lose your job or have a large bill to pay, emergency savings will keep you afloat. You didn’t choose for these things to happen, but you still need to be prepared.

    So, emergency savings are for protecting yourself and your family from the unexpected. Like we talked about above, Parachute Money is about you dictating the course of events, not the other away around.

    What are my current parachute strings?

    My wife and I have worked hard to create multiple sources of income. We currently have the following strings in our parachute, in no particular order:

    • My primary job as a mesothelioma attorney
    • My wife’s primary job as an attorney
    • Rental Property 1
    • Rental Property 2
    • Rental Property 3
    • Rental Property 4
    • Law School Professor
    • Emergency Savings

    Combined, these sources of money provide a solid parachute for us.

    If you wanted to, you can break out some of these sources of income into further parachute strings.

    For example, Rental Property 1 consists of 4 apartments. Each apartment could be a separate string. I teach multiple law school courses; each course could be another string. Like we talked about above, your job may include a salary, commissions, and bonuses. Each could be a separate parachute string.

    What are some situations where Parachute Money can make big decisions easier?

    Let’s look at three possible situations where Parachute Money can empower you to make the best choices for you and your family.

    1. It’s time for a new job.

    After working for the same company for 10 years, life around the office looks different.

    Your direct supervisor left for a new job. You were passed up to take her place. New policies are rolling out, including a requirement to be in the office five days per week.

    You feel stuck in place. You still like your job and most of the people you work with. And, you could hang around for the steady paycheck.

    Or, you can take control and make a change. If you have Parachute Money, you can take your time looking for a new job that matches your priorities. Maybe you decide not to go back to full-time work at all.

    2. It’s time to move.

    You live with a roommate and have another 10 months on your lease. Things have gotten uncomfortable.

    He doesn’t clean up after himself. He stays up late watching movies so loud you can’t sleep. He eats your favorite leftover Thai food you had saved for lunch the next day.

    You could “tough it out.” He’s still a good friend of yours.

    Or, you can take control and make a change. If you have Parachute Money, you can handle the costs of breaking the lease and finding a new apartment.

    3. It’s time to stop depending on your parents.

    You’re a full-grown adult and are still financially dependent on your parents.

    Sure, the money is nice to have.

    The problem is your parents have let it be known, in so many words, that they are to be consulted on how you spend their money.

    You may think you are choosing where to live or where to send your kids to school. Deep down? You know your parents will have the final word.

    Elderly father lends money to his adult son. He helps his child deal with financial problems. His son is hoping to not be dependent on his father anymore thanks to Parachute Money learned on Think and Talk Money.

    You can continue letting your parents dictate your life.

    Or, you can take control and make a change. If you have Parachute Money, you can tell your parents, “Thanks, but no thanks.”

    Parachute Money gives you control.

    These are just a few examples of how Parachute Money allows you to regain control of your life.

    Notice that in each situation, you’re not dealing with a sudden emergency. Instead, you’ve reached a tipping point and decided it was time for a change. Without Parachute Money, your options would be limited.

    In our example above about wanting a new job, Parachute Money allows you to make that leap. You may temporarily be without your primary source of income- that string on the parachute broke.

    But, you’ll be more than fine because you have other parachute strings to land you safely, like an emergency savings account, a side hustle as a ghost writer for a blog, and a rental property.

    Parachute Money is one of my favorite personal finance concepts.

    Parachute Money is one of my favorite concepts in personal finance. I first learned about the general idea from J L Collins in his renowned book on investing, The Simple Path to Wealth: Your road map to financial independence and a rich, free life.

    The Simple Path to Wealth is a must read for anyone wanting to learn the power of investing on your own through index funds.

    We’ll have plenty more to say about how Collins has influenced my own decisions in our investing series. I credit him for teaching me that investing does not have to be hard. It’s actually pretty simple if you follow his tips.

    To learn more from J L Collins, check out his website here.

    In his book and blog, Collins describes what he calls “F-You Money.” He tells the story of getting in a shouting match with his boss one day at work, shortly before walking away from that company. As Collins explains, nobody deserved an “F-You” more than that guy.

    In Collins’ example, he had enough money saved up where he could say those choice words to his boss. His “F-You Money” empowered him to live on his own terms.

    On your way to financial independence, don’t ignore Parachute Money.

    The reason I love the idea of Parachute Money is because it encapsulates so many of the money wellness habits and goals we’re striving for with Think and Talk Money.

    Parachute Money gives you flexibility and control. When you have multiple sources of money, you are not beholden to any one source.

    Think back to the image of the parachute with only one string. What happens if that one string breaks?

    Likewise, what happens if your only source of money no longer fits into your best life?

    As you think about these questions, picture yourself jumping out of the airplane.

    What parachute are you reaching for?

    Disclosure: This page contains affiliate links, meaning I receive a commission if you decide to purchase using my links, but at no additional cost to you. Please read my Disclosure for more information.

    © 2025 Matthew Adair

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