Writing a Cheque

Emergency Fund – Why It’s Crucial To Freelancing and How You Can Start Having One

Having cash to cover unexpected expenses comes in very handy at all times, hence, an emergency fund is quite crucial to stay on [financial] track. As a freelancer, we sometimes come across periods where projects are slow and start to worry about our monetary obligations. Plus, somewhere along the way, an uncalled for but often necessary expense would come along.

While some of us may have stashed a reasonable amount in the bank as an emergency fund, others simply don’t have enough or any at all. I have asked some of the freelancers I’ve known through the years and it’s a little sad to have learnt that more than half of them don’t have an emergency fund, and would depend on what they earn in their projects at a given time.



How much should one ideally stash in their emergency fund?

In one of my articles – YOU CAN’T JUST QUIT YOUR JOB – There Are Seven Things You Still Need To Plan Before Shedding Your 9-5 Look – I pointed out how a freelancer should make plans about their financial targets and how to go about meeting them. Freelance earnings can sometimes become sporadic, at any given year, and dry seasons should very well be anticipated and prepared for. Full time freelancers might want to consider a 6 month’s worth of income to make sure they’re covered in times of financial emergencies. However, a 3 month’s worth of their average monthly expenses should work just perfectly fine.

The ideal amount should actually depend on how stable their earnings and needs are. Single people generally have less overhead than married ones with children. The unmarried ones should generally be good with a 3 month’s worth of monthly earnings, whilst the married ones may have to at least save a 6 to 12 month’s worth of it for their emergency fund.

More so, in order for freelancer’s to come up with an optimal emergency fund amount, the question of how long it would take them to start on new projects or find a new job must be pondered.

Emergency funds are generally, and much to our disappointment, overlooked until such time that we need them. So, it might just be a brilliant decision to build one and get rid of the worries and stress of emergency situations.

Also, and quite importantly, do not treat your credit cards as an emergency resource. Some establishments just won’t accept credit cards at the moment.

(Freelancers in the Philippines, India, and other developing countries may find this true, as plastic and cashless transactions have yet to become part of the lifestyle.)

What really happens when you don’t have an emergency fund?

A few things really, but one’s quite startling to even think about: DEBTS, and unnecessary ones. If you haven’t got cash stashed away in your emergency resources, you’re likely to borrow money to cover your unexpected expenses. And then you’ll have to find the money to pay for them in due time. If you fail to, you’ll be indebted again to someone else just to have it paid. Before you know it, you’re up to your neck in debt and it’s going to take a while before you recover.

Awkward situations can even happen. I’d like to think it’s funny, and it is, but not having enough cash (either on hand, in your drawers, or in a savings account to withdraw from) can get really embarrassing.

I remember just over the Christmas holiday that I forgot to have enough cash with me. Local funds transfers are expected to take a while due to a number of bank holidays ahead and the best way to receive the payments were through Payoneer (where they have a facility to expedite loading of funds within minutes of initiating the transfer). With the fees associated with getting cash from Payoneer through an ATM, it’s never really very ideal to withdraw, hence I’m forced to depend on debit card transactions in shops in restaurants. The awkward and very funny part was I had to ask a friend to come over to the mall where I was, ask her if she’s doing some grocery shopping, so I can pay for them with my debit card and take her cash – just so I could have some in my pocket to get me through the entire holiday week or two. Funny and awkward enough, this shouldn’t have happened had I known better. There’s not always a friend ready to go buying some stuff in shops for you to use your card in exchange for their cash. At that time the importance of having emergency cash around had been reiterated in my mind.


So how do you go about building your emergency fund? Here are five basic steps to do it.

       Keep your expenses at bay. Track them and fish out the unnecessary ones. Use a notepad or a spreadsheet to list the things that you need to sustain your cost of living: rent, utilities, food, toiletries, etc. Find time to sort things out and separate your needs from the things you just want. Get rid of the unnecessary dine-outs and big spending to make room for bigger savings.

       Have close look at your current financial situation to find out how much you’ll ideally need in emergency funds. Consider your health, too. Do you have allergies or a rather fast reaction to the changes in weather. You should know for yourself the frequency of your medical appointments and emergencies in the past couple of years to determine if you’re going to need a bigger emergency fund. Do you have a motorised vehicle (a bike or a car) that would need proper maintenance? If so, you’ll have to come up with something higher than 3 month’s worth of expenses.

       Make a decision as to how you would keep your emergency fund. It’s always ideal to put them in a savings account – but a different one from where you draw your expenses from. A card savings account should be brilliant as you will have to have access to it in emergency situations. Or you can also have safely locked in your drawers and the other half stashed away in a savings account – whichever suits you.

       Start saving. Once you track your cost of living expenses, it’ll be easy for you to allot a reasonable amount in savings. And since you’re a freelancer, treat yourself as your own employee. Give yourself a reasonable amount every payday to cover your costs and keep the rest in the savings account. Although it’s tempting to just take all the available money out from your account, don’t. You’ll never know where you’re going to need it.

       When you’ve saved enough and reached your target amount, don’t stop there. Continue saving more and you’ll be happy with how much you’ll have in the future.

The last bit is very crucial. We may think that once we’ve saved the target amount in emergency fund we can stop saving. But the truth is, it is just a terrific idea to continue the build-up as we may need to have a few financial adjustments along the way. Knowing we have enough, and maybe even more, should keep us (may I say) on track, and perhaps afford a new investment or have a little “lifestyle upgrade”.

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