These days, more people are looking into self-employment than ever before. The growth of the internet, and the rise of tools for online selling and website creation means that anyone can create a business with a little dedication and the right idea. However, just because the entry to business ownership is easier today, doesn’t mean that you won’t face some challenges along the way. For many entrepreneurs and self-employed professionals, the biggest challenge they’ll face to begin with will be managing their finances.
Most people recommend keeping your day job and starting a business on the side at the same time if you’re planning on going self-employed. That’s because it takes a while before most businesses can give you a full income. Whether you’re entering this lifestyle slowly, or jumping straight in, there’s one thing that you need to ensure that you’re financially secure: an emergency fund.
When Should You Start Saving?
Ultimately, the best time to start planning for a financial emergency is yesterday. However, if you plan on going self-employed, you should begin your saving as quickly as possible. Even if you just put a little bit of your regular income away every month, that will help you to prepare for the future. While you’re waiting for your emergency money to grow, it’s also worth looking into other tools that might be able to help you if something goes wrong.
For instance, if you’re fully self-employed, it’s often difficult to find a bank or traditional lender to give you a personal loan if your company faces an emergency. However, you can always look into payday loans if you know you’re not going to have enough cash to pay what you owe the next month. Doing your research and planning for any eventuality is crucial for any would-be freelancer or business owner.
What is an Emergency Fund, and Why Is it Important?
If you’ve ever created a budget, then you’ll know a little about an emergency fund already. These rainy-day accounts are basically pockets of income that you keep safe until you need them. Most financial advisors recommend keeping a small portion of your wages in savings just in case – even when you’re employed in a traditional job. Having an emergency fund ensures that if something goes wrong with your career, or you suddenly get sick, you’ll still have money. When you’re self-employed your crisis cash is there not only to pay your bills but keep the lights on in your business too.
With that in mind, you might need an even bigger portion of savings to put aside, just in case. While most experts recommend saving up to three months’ worth of wages for the average person, a freelancer, self-employed person, or entrepreneur should often save up to 6. To find out exactly how much cash you need in your fund, calculate the budget that you’ll need to pay for your essential household bills, and keep your company running. You’ll need enough cash in your reserves to pay those expenses for at least three months – which should be enough time for you to find an alternative source of income.