The Importance of an Emergency Fund

Today, I am going to talk about something that everybody should have, especially freelancers. It can help when something happens to your income. It can help when a large expense comes your way. It can provide security. It is an emergency fund. The emergency fund is 3-6 months of expenses that is put in an easy to get to savings account. It is used when something unexpected happens.

Freelancers tend to have a feast or famine routine where income can vary wildly. It is smart to put away money during feast times to help with famine periods. This would not be considered an emergency fund, because we know that famine periods exist and we will go through them. This money would be for a planned event.

Now, if something happens where the feast times dry up, that would be a time for the emergency fund. This could be caused by an illness, a big client that suddenly decided to do something different, or some external event caused business to dry up. This was not planned for and would make it impossible to pay your bills.

Another reason for an emergency fund is for unforeseen expenses. Unexpected expenses can include being sued by a client, a major home repair, a major car repair, or a medical expense. There are many expenses that could come up that would make it difficult or impossible to pay your monthly bills.

Finally, an emergency fund can provide security. If you have 6 months of expenses saved up, it is easier to quit your job to pursue freelancing on a full time basis. It would be an easier decision to change the direction of your business or let go of a big client that is causing too many headaches. It provides the freedom to make the decision without having to worry about how you are paying for your everyday expenses.

Now, what exactly is an emergency fund? It is 3-6 months of expenses. Expenses would be bare-bones monthly expenses to keep you and your family afloat if something major happened. Be sure to include food, housing (rent or mortgage), vehicle costs, utilities, phone, internet, and anything else that you need to live and work. You may need to cut back on eating out or other entertainment options while you are living on your emergency fund, but it is only until you get back to work.

Once you use some of the emergency fund and are working again, you need to fill it back up. If you are not using it, it needs to either be full or in the process of being filled. You should not use the the emergency fund for anything other than an emergency (no, a late night pizza is not an emergency).

I will give you a real world example. I was working a full time job and starting as a freelance graphic designer about a year ago. Over the course of four days, my eyes closed and I was not able to open them. I had some vacation time saved up, but not that much. We spread that out so that it paid for the health insurance, so in essence, I had zero income. We were in the process of building our emergency fund and we had 2 months saved up. I also had long-term insurance, but the first check from that did not arrive for 4 months.

We had a lot of help from family and friends to cover that gap, but it would have been a lot less stressful if we had the money saved up. With me being the only wage earner in our family, it was devastating when I lost my income. We are just now building the emergency fund back up.

I am glad that we had what we did, and we are always going to have a fully funded emergency fund from now on. I highly recommend it to anybody, but especially freelancers.

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About DJ

My name is DJ, and I am starting my third career. My first was a ten year career in theatre, where I worked with some big names and in four states. My second career was working on computers, fixing them and programming them. Now I am starting a career as a writer.
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