During the time of Coronavirus impacts, it’s becoming more and more clear just how important emergency savings are, especially for entrepreneurs.
Before you quit your job and start your entrepreneurial journey, make sure you have money set aside to help cushion your transition! The goal of every business is to grow, which implies that you have to start somewhere. In the beginning (and sometimes even far into your journey), growth might be slow and unexpected events might happen. You’ll be happy you took the time to develop a fund that can help you ride the waters.
Ways to develop your emergency savings:
Lower your monthly expenses and put away what you save
A good way to start is by writing down all your monthly expenses: rent, groceries, gas, utilities, laundry, eating out, drinking out with friends, etc. Then, prioritize them. Rent, groceries, utilities, and gas should be first. Once you’ve ranked your expenses, commit to removing the last one or two on your list. In this case, maybe its drinking with friends and eating out. Let’s say you usually spend about $150 a month on the two combined. CHA-CHING! You just found a new way to save $1,800 dollars this year.
NOTE: You must be honest with yourself here. How much do you really spend on eating out? Try keeping all your receipts and adding them up at the end of the month. Also, it’s important to stick with your commitment and remember why you’re doing this in the first place–to become an artrepreneur! It’ll be hard at times, but you’ll love seeing that $150 go into your savings account each month.
TIP: As soon as you get paid, put the money you would normally expect to spend into your savings account. Don’t wait until the end of the month. This way, when your friends call you up, you simply don’t have the money. Suggest a new way to hang out, like picking up a cheap bottle of wine and hanging out at home instead!
Find a way to bring in extra money every month and put away what you make
This might be a little tougher if you’re busy working on your creative business in your free-time, but there’s still a possibility it might work for you. Look for new, creative ways to earn extra money every month. Think back to when you were a kid and went to your neighbors asking to clean out their garage or mow their lawn for some cash. Maybe you start walking the dogs in your apartment complex, or maybe you start driving Uber on weekend nights, or maybe you sell your family-famous shortbreads to whoever will buy them! Whatever it is, remember one thing: all the money you make from this activity should be placed into your savings account, immediately.
What tax refund?
If you’re used to planning a trip or buying a special gift with your yearly tax refund, think again! Saving your tax refund can be one of the easiest ways to build up your emergency savings. It’s best think of your tax refund as if it simply doesn’t exist. Don’t rely on your refund to help pay your bills, instead use it as a nice deposit into your emergency savings!
Don’t be afraid to use your emergency fund when you NEED to. It’s there for a reason.
Don’t use your emergency fund unless you NEED to!
Think of your emergency fund as money you don’t really have. Sometimes it can be tempting to dip into your emergency fund when you see a nice $2,000 sitting in your savings account; but remember: it’s not really there, unless there is an emergency.
Keep your emergency savings in a separate account. Consider even keeping it in an account that’s hosted by another bank. That way, when you log into your online checking account, you don’t have to be tempted by it. Out of sight, out of mind.
Always move money into your emergency savings right when you get paid. It’s easy to spend money that’s just sitting there.
How much should you save?
The answer to this question will be different for everyone, but a good rule of thumb is to shoot for 6 months of living expenses before stopping your savings grind. Living expenses includes bills that you must pay every month, like rent, utilities, and groceries. Some entrepreneurs suggest that you have a full year’s worth of savings before quitting your job and taking your business full-time. But don’t be discouraged by these numbers. Even $500 can do a lot when you’re in a pinch. When it comes to emergency savings, anything is better than nothing!
Yeah, it sucks having to give up weekend drinking with your buddies and eating out at your favorite restaurants. But when you know you have money to support you in hard times, the amount of stress you can let go is incomparable. Much of the spending we do alleviates stress in the first place, so get to the root of the problem and develop an emergency fund that can help you feel confident when continuing along your artrepreneurial journey!
P.S. Follow Artrepreneurship – where ‘art’ and ‘entrepreneurship’ meet to get more up-front and honest advice about how to make your artrepreneurial journey easier!