Creating Your Money Ladder

Money Ladder

I am currently reading a book titled
"The Story of Rich" .

Rich in this story is about a small business owner who successfully sold his small business for an 8-figure amount and is waiting to retire.

However with the amount of money coming to his hands, he is pondering how to plan for it.

This book is part parable, part-non-fiction and how-to book on personal finance.

There is a particular chapter where the author mentions about creating a money ladder.For instance, if you have $400,000 of savings, you might want to split them into 4 portions.

• First $100,000 is used as emergency cash and is placed in a fixed deposit account.
• The next $100,000 can be invested in high growth shares for greater yield
• The next $100,000 can be invested in dividend playing stocks
• Last $100,000 can be invested as an opportunity fund.

In this way, one can ensure that they have sufficient cash when they need to use in an emergency and not have to compromise on growth in a stock market.

I realized that this plan may work if you have lots of cash upfront but i am thinking of this works if you have limited funds like $40,000?

Here's how I would split the $40,000

• $10,000 in emergency funds
• $10,000 small companies and high growth stocks
• $10,000 dividend playing stocks like blue chips and REITs.
• $10,000 in bonds.

What do you think?
Is this type of assets allocation effective or only works for those with a large 'war chest'?