Many people do not consider this aspect, but establishing a personal emergency fund may actually prove to be extremely beneficial for the development and expansion of your business and not only.
The moment I decided not to pursue any longer the business school I was attending and launch my own small business, I knew it was a bold move. So, right before I transformed my business plan into a small business, the first thing I did was use all my savings from the time I worked as a translator during the college years. It may not have been enough to be considered operating capital, but it was still a good start. Also, the money could have always been used to pay unexpected bills that may come as an inconvenient at any point in time.
In the early days of my company, that money actually played an important part. By having a small financial net I could remain focused at building my company from the ground up. It came as a relief not to think all day long about financial issues. A couple of years have passed since the “birth” of my company, but that “freedom” fund remains one of my most important assets. This does not only offer me liberation, but also confidence when life’s problems will pile up on me. The “freedom” fund helps me manage all day to day activities and determines me to put 110% so that I can keep the expenses that may arise at bay.
That being said, given the economic status worldwide it comes as no surprise that many people do not have emergency funds nowadays. According to a survey from a couple of years ago, almost 66% of all Americans didn’t have at least $1.000 set aside to cover any unexpected expenses. In another study it was reported that nearly 1 in 4 people with an income between $100.000 and $150.000 could not raise $2.000 in 30 days in order to cover for any unforeseen expenses. Therefore, it appears that an unwritten law that every penny you make should be invested of your business. However, what do you do in case things get a turn for the worse? You need an emergency savings account, especially if you’re an entrepreneur or a small business owner.
A key aspect of having a freedom fund is that it relieves stress and, even though 1 in 2 businesses survives for five years and 1 in 3 survive for ten years, investing some money in yourself and not in your business may help you in the long run. If your business will fail, the time it takes for you to find a new job may be longer than you think, given the economic status of today’s economy. So, having a little money for rainy days may even help you launch a new venture. Also, it can be seen as a bridge that will facilitate the transition when you need to cover the essential bills.
When creating a freedom fund you have to take into account the marital status. If you are single, you should have a fund that covers up to nine months of living expenses and if you’re married, up to a year. Also, consider saving more if you have children. If you can afford to create the fund, props to you. However, if you don’t, consider making the commitment today and start saving. You can do this by setting up regular automatic transfers from your checking account to your separate savings account. Consider the fund as a bill that you have to pay on a monthly basis. In my opinion, it’s not a luxury, but rather a necessity or a safety net.
Consider having the money available at any time by means of deposit accounts insured federally at a credit union or a bank. The main disadvantage of these accounts is that they yield rather little interest, but you have to set your priorities straight. First of all, you should be looking for safety and liquidity.