Freelancers are one of the many workers who had it tough these past few years.
When the global pandemic shuttered offices, many lost contracts or couldn’t work at all; ongoing supply chain issues still disrupt how easily or quickly you receive materials, goods, and products; and now, everything costs more with record-breaking inflation.
If there’s one thing you can take away from these current events, it’s that you can’t always predict what’s coming in the future. But you can prepare financially for the unknown as a freelancer with one tool: the emergency fund.
What is an Emergency Fund?
An emergency fund is a special account of savings that’s reserved for the unknown. These savings go untouched until something goes unexpectedly (and expensively) sideways.
A fully sized emergency fund should have three to six months of living expenses saved in it. At this size, it should be able to cover a variety of small, unexpected bills or long-term interruptions in work, like a lost contract or illness.
Why is an Emergency Fund Important?
When things go wrong unexpectedly, your usual budget might not have enough expendable cash to cover another expense.
If your furnace dies one day, an emergency fund gives you the cash you need to replace it without worrying about how you’ll make ends meet.
An emergency fund is a safety net for when things go south — you’ll be able to tap into these savings for any unexpected expense that comes your way.
What if Your Savings Aren’t Enough?
Realistically, it’s good practice to understand things can go from bad to worse, even when you have an emergency fund.
You could have to fix your furnace before you manage to start saving. Alternatively, you could get hit with a second unexpected expense not even a week after you drain your savings for that furnace.
Some extra-cautious people add a line of credit to their finances as a secondary safety net for these situations. If you get approved for your own line of credit, you can borrow what you need any time your emergency fund isn’t up to scratch, as long as you have available credit.
Even if you don’t use it often, a line of credit gives you peace of mind, as you know you’ll have a way to handle unexpected expenses while you establish or rebuild your savings.
How Can Freelancers Save More in an Emergency Fund?
Now that you know why saving is so important, let’s cut to how you can sock away more cash into an emergency fund.
When it comes to saving more money, you might have to cut other things loose from your budget.
Unnecessary splurge items like extra clothes, takeout, and one too many subscription services should be on the chopping block. By reducing these expenses, you can free up more cash that goes towards savings.
2. Adjust Your Prices
A budget shows your incoming cash in addition to your outgoing cash. This spotlight on your income might reveal you aren’t earning enough to cover all your needs.
At this point, you’ll want to consider raising your rates so that a fraction of every invoice goes towards your emergency fund.
3. Automate Your Finances
Automation makes banking easy. By letting your bank transfer money into your emergency fund every month, you won’t accidentally forget to contribute one month — or several.
Everyone needs emergency savings, but this especially rings true for freelancers. Take this as a sign to prioritize savings in the year ahead.