All self-employed workers need this backup plan
Photo by Ivan Samkov from Pexels
If you’re a freelancer, contractor or self-employed worker, you know that you don’t have as many work protections as salaried employees in corporate offices. You have to make your own protections! One protection that you can set-up for yourself is this financial backup plan: an emergency fund.
Emergency funds
An emergency fund is a collection of savings that you reserve for unexpected, urgent expenses. You can withdraw the amount that you need from the fund at a moment’s notice. You don’t need to jump through any hoops to access that money. It’s yours to use when you need it most.
How to start an emergency fund:
Starting an emergency fund is easy. First, you need to look over your budget to see how much you can afford to set aside every month for emergencies. If you don’t have a budget, you need to start one right away. Download one of the top budgeting apps available and follow all of the instructions. You’ll have an effective budget in no time.
Once you’ve established how much you can afford to contribute to this fund, you should open up a savings account. This is where you’ll transfer and store the savings. To make matters even easier, automate the monthly contributions from your checking account into your new savings account. It will steadily grow over time.
What other backup plans to get:
In the first few months, you probably won’t have enough savings inside the fund to resolve any urgent expense. So, to give yourself some additional protection, you should do two things:
- Keep the balance on your credit card below the limit.
- Apply for a personal line of credit.
By keeping your credit card’s balance low, you leave yourself enough available credit to handle an urgent expense right away. Once you’ve recovered from the expense, you can invest your time and effort into paying down that balance as best as you can.
A personal line of credit is another open-end credit tool that you can turn to during emergencies. Where can you get one? Go to a website like CreditFresh to see whether you meet all of the requirements to apply for a line of credit in your state. If you do, you can send in an application and see if you get approved. This backup plan could be really useful.
Why do you need these backup plans?
Tech breakdowns
When any of your tech breaks down unexpectedly, you’ll want to get it fixed or replaced as soon as possible. An emergency fund can help you cover those costs right away.
Late payments
An emergency fund can help you stretch your budget whenever your clients are taking too long to give your paycheck — or worse, when they’re intending to skip out on payment altogether.
Unfortunately, late or missed freelancing payments are an all-too-common problem for self-employed workers. You’ll want to be prepared for when it happens to you.
Burnout
Paid sick days, vacations and mental health leave aren’t things that you can really access as a freelancer. At the same time, you can’t push yourself to complete your projects when you’re spotting the signs of burnout or you’re feeling sick. An emergency fund allows you to fall back on your savings when you need time to recover.
You don’t have an accounting department, an IT department or an HR manager to help you deal with your work issues. As a freelancer, you can only rely on yourself. That’s why you need these backup plans.
