Building Emergency Funds for Your Life And Business-A Guide for Creative Small Business Owners
Would you like to create financial stability? Today, I’ll show you how to build emergency funds for your business and your personal life.
Hi, my name is Lucas and I love to help business owners improve their finances. By my late thirties I was tired of living paycheck to paycheck and hiding from my financial problems so I began to transform them. One of the first things was to build a twelve month emergency fund and along the way, I realized that I was missing out on a few opportunities.
Now, I have emergency funds for emergencies. I use safety nets for unexpected expenses and I use surpluses to get ahead on taxes and create stability with my seasonal income.
Today, we’ll talk about all three strategies and I’ll show you how to use them to build financial stability. So let’s get into it… (If you prefer to watch the video, please check it out here…)
Improve The Flow of Your Money
Now, if you’re currently thinking, “Dude, I don’t have extra money to build an emergency fund, I feel ya. Just a few years ago my accounts were empty and I had a massive pile of debt UNTIL… I changed the flow of my money.
So, how do you improve the flow of your money? Think of a garden hose - you turn it on and the water is flowing full force but when there’s a kink in the hose, only a trickle comes out the other end. This is what most people are doing with their money..
They get paid, the spend it first which puts a kink in the hose, and then there’s nothing left to put towards emergency funds or other financial goals.
But, when you change the order - money comes in and you pay yourself first, you step off the hose and the flow of money improves.
To be clear, when I say pay yourself first, what I mean is put money towards all of your financial goals and responsibilities FIRST.
Once you’ve improved the flow of your money, it’s really easy to build emergency funds, safety nets and within a short period, you’ll begin to see surpluses grow.
Emergency Funds
About a year before the world wide lockdowns I was hiking with a close friend and colleague. He was a new business owner and struggling with his finances So, I taught him the basics of The Big Split.
He improved the flow and began splitting his money - over the year his accounts grew - putting him in a fantastic financial position. And then, the world stopped and so did his income. Luckily he was able to live on that money for almost two years because he had built up his accounts.
An extreme situation for sure but it’s a great example of being prepared for an emergency situation. And that’s the purpose of having an emergency funds.
Maybe your income stops unexpectedly, there’s a medical emergency or maybe you’re going to implode if you stay at your current job and you desperately need several months to get clear on your purpose.
No matter what you use it for, I invite you to start off by setting a goal - maybe three, six or nine months worth of living expenses. I started off with twelve and eventually bumped it up to twenty four.
Then, set up or designate an account specifically for your emergency fund and keep it separate from your day to day business and personal finances. And lastly, pick a percentage and each time you receive money, send that percentage to your emergency fund.
Do this every time you get paid and before you realize it, it’ll be full. And that brings us to building Safety Nets…
Safety Nets
The purpose of a safety net is to soften your fall - I don’t know about you but I stumble and fall all the time. From a car breaking down to unexpected dental work to getting invited to a destination wedding I wasn’t planning for safety funds are there for the unexpected expenses of life.
Let’s be honest, Life is one long series of unexpected expenses and when we’re not prepared, every little thing can throw us off. But when we have a cushion built in to our accounts, specifically for the unexpected, we are covered.
Let me give you an example… My photo business is highly seasonal, bringing in money for four months in the summer and four months in the winter - leaving me with zero income 3-4 months a year. Before I built safety nets into my accounts, the off seasons would crush me.
I’d have to pull from my emergencies funds and even borrow on credit to make ends meet. But now, I keep a $6000 cushion in my business, personal and tax accounts. Plus I have an emergency fund so now, not only am I prepared for the off season’s, I’m usually on vacation.
Safety nets are an added layer of protection that strengthens your financial stability. Plus, their easy to build.. Just like building an emergency fund, First, set a goal - I started with a $1000 buffer in my my business, living expenses and tax accounts and over time, built them up to $6000 buffer each.
Next, shift your focus - instead spending on useless stuff, hit the pause button for a little while and dedicate yourself to building your safety nets. And lastly, every time you receive money, split it up and add a little to each account until you reach your goal. Anytime you use money from the safety net, replenish it at a pace that makes sense for you.
Let’s say that your laptop stops working - Without a safety net, you have to pull from the money from somewhere else or borrow on credit but with that cushion you can buy a new one without skipping a beat
How would you feel if you had a $6000 cushion in your business account? And another $6000 to cover your living expenses and another to cover your taxes? And you had an emergency fund? Would you relax a little? My clients certainly do.
And that brings us to account surpluses…
Surpluses
A surplus is when you have extra money in your account - If yours are currently empty or you have a pile of debt, a surplus of cash may seem unrealistic - it definitely did for me but, as you build financial stability, it becomes a reality quite quickly.
Like a snowball rolling down hill, when we consistently add to our safety nets and emergency funds, we eventually surpass our goals and that creates a financial surplus.
By the way, this is a by-product of splitting your money and it’s something that all of my clients experience. Comment “the Big Split” if you’d like to learn more.
Let me give you an example - when I split my money, I send 25% to my tax account & because I don’t need 25%, over time, a surplus builds. Sometimes I use it to pay my taxes in advance and sometimes I use it for a business purchase.
Another example - my original goal was to save 12 months living expenses for my emergency fund. Once I hit that goal, I continued to set aside money and deployed some of it into an investment property. Then, I figured, why not build a 2nd year’s worth of emergency funds.
The point is, once you set emergency fund and safety net goals and contribute to them each time you get paid, over time, you hit your goals and then you build a surplus.
As we wrap up, I invite you to do a few things:
Start with an emergency fund - set a goal - say six months worth of living expenses
Set up or designate an account specifically for the emergency fund and keep it separate from your business and personal finances.
Pick a percentage and then every time you receive money, send that percentage to your emergency fund.
Once you achieve your goal, switch gears and focus your attention towards your safety nets. Set a goal, say $3k in your business and $3k for your personal life and build those up.
Once you build a cushion in each of your accounts and you’re feeling financially stable, the surpluses will begin to build.
You can double your emergency funds and safety nets or start putting that money towards investments or maybe you start traveling several times a year.
Remember, emergency funds are for emergencies. Safety Nets are for the unexpected. And surpluses can be used at your discretion. Each of these offers a layer of financial stability.
Just one or two will put you in a better financial position - but when you strategically use all three, you’ll always have plenty. And if you’d like to learn how to use all three to build your wealth even faster, comment The Big Split and I’ll send you an application. If we’re a good fit, your first session one on one with me is free and there’s no obligation to buy.
Thank you so much for your time and energy and thank you for choosing to show up for you!
- Lucas Z.