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The Importance of an Emergency Fund

<p>Life has many surprises in store for us. One morning you have many contracts and a lot of loyal customers and by the end of the day, everything you have worked hard for falls apart. This is what many self-employed people experienced when the pandemic occurred. It is also during these moments that one realizes the importance of having an emergency fund. In this article we&#39;ll discuss the need to have money set aside when you&#39;re self-employed and a few tips to make saving easier.</p> <p>&nbsp;</p> <h3><strong>Is an Emergency Fund Mandatory?</strong></h3> <p>&nbsp;Let&#39;s start with this question: is it mandatory to have an emergency fund when you are self-employed or a freelancer? The answer is no; however, it is highly recommended. It&#39;s considered one of the <a href="">mistakes to avoid when managing your own finances</a> according to V&eacute;ronique Gagnon, the founder of the blog Manage Your Bacon. Emergency funds are there when a major unforeseen event falls on your head. It can be your car breaking down, a big customer who decides to back out of a project, your computer that no longer works, an off-season that doesn&#39;t end... It&#39;s not used to pay regular bills or your groceries every month. It&#39;s an amount of money that&#39;s there to save your ass when you run out of options. And since you are your only source of income, it would be wise to think about putting some money aside if you want to be self-employed for a long time. You can&rsquo;t put a price on sleeping soundly because you know that no matter what the future holds, you have enough to get through.</p> <p>&nbsp;</p> <h3><strong>How Much Should I Put in my Emergency Fund?</strong></h3> <p>&nbsp;Unfortunately, there is no magic amount for your emergency fund. Start by analyzing your needs. How much do you need to pay for regular expenses: shelter, food and bills? How much would you need to survive if suddenly all your customers were to leave? Generally, it is recommended to have between 3 and 6 months of expenses set aside. For many people, this is several thousand dollars. If necessary, make an appointment with an accountant to help you understand more clearly what you need.</p> <p>&nbsp;</p> <h3><strong>A Few Tips on How to Set Aside an Emergency Fund</strong></h3> <p>&nbsp;Many self-employed people will probably say that they cannot afford to have an emergency fund, especially at the beginning. Let&#39;s look at the situation this way: if you wanted to buy a house, you would set aside a certain amount from each paycheck. You would save up your money and after a while you would have the necessary down payment. Just do the same for your emergency fund. Here are some tips to regularly save money in the event something unforeseen happens.</p> <ul> <li> <p><strong>Start with a Small Amount</strong></p> </li> </ul> <p>If you don&#39;t have a lot of leeway, start by setting aside a small amount each week. The important thing is getting into the habit of saving on a regular basis. If necessary, request a direct debit into your account so you don&#39;t have to think about it. Keep in mind that a mere $5 a week will become $260 at the end of a year. Then increase the amount over time. In short, don&#39;t wait until it goes wrong to realize the importance of having an emergency fund.</p> <ul> <li> <p><strong>Separate Your Emergency Fund from Your Main Account</strong></p> </li> </ul> <p>It may be tempting to tap into your emergency fund for an expense that is not essential especially when everything is going well. As mentioned above, this is an amount that is there when you run out of resources, it is your last resort before you go and apply for a loan. It has to be accessible, but not too much. For example, you could put your money into a TFSA as your emergency fund. Remember, don&#39;t hesitate to seek personalized recommendations from a financial advisor.</p> <ul> <li> <p><strong>Plan it When You Calculate Your Prices</strong></p> </li> </ul> <p>One way to build your emergency fund is to include it in your rates. When you send a quote, you probably already know that your price must include the time you take for your administrative tasks, as well as an amount for your retirement. Simply add a few pennies to your emergency fund. For example, if you have the goal of raising $5,000 in a year, that&#39;s $96 a week. If you work 35 hours in general, that&#39;s $2.75 more per hour.</p> <ul> <li> <p><strong>Get the Right Insurance</strong></p> </li> </ul> <p>But why get insurance if I have an emergency fund and vice versa? Simply because insurance can be an ally in your self-employed life. For example, consider you get sick and are off work for several weeks. If you have disability insurance, you will receive an amount to help you. This way, you won&#39;t have to touch your emergency fund and it will continue to grow. Don&#39;t hesitate to take a look at the various insurance options available for self-employed people and freelancers. Many banks offer options specifically for you.</p> <p></p> <p>In conclusion, we hope to have convinced you of the importance of having an emergency fund when you are self-employed. Start by having a goal that will meet your needs in the event of a problem, and then make a plan to save money. If you&#39;re looking for other sources of inspiration, take a look at our article <a href="">How to</a> <a href="">Save When You&#39;re Self-Employed</a>.&nbsp; A small amount will grow over time!</p> <p></p>