Emergency Fund

Do you need an emergency fund for yourself and your business?

I learned this lesson quickly.

The business was doing the opposite of what it was supposed to do.

Instead of making me money, the business was costing me money. Month after month, the paycheck I earned from my job was being poured into the business as I was trying to keep it afloat. No matter what I did or how much money I put into the business, it continued to eat up cash.

Life is like a dream when a business is making money, but it can be a nightmare when it is not. The day I sold my business, I was relieved. The expenses, time burden, opportunity cost, and the responsibility of employing people were a lot to manage. Add onto that, the business was taking money out of my pocket every month.

If I had not planned for potential future problems for Downtown Express, I may not have been able to hold onto the business long enough to sell it. Even though I believed my business was going to make me money, I was prepared for it not to. Praise the Lord we had enough money saved for emergencies such as this.

If we didn’t have the next month’s rent, the new buyer may not have followed through with the purchase, or the landlord may not have extended the lease to the new buyer. Many things could have gone wrong if we didn’t plan for hard times.

Emergencies happen. It is a fact of life.

How you prepare for those emergencies will prove how successful you are at being an entrepreneur.

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Planning for your future income, expenses, and emergencies just might be what saves you from closing down your business in the end. The best time to plan for hard times is when things are going well. It is already too late to plan once things are going bad for you and your business. Learn from my mistakes and plan ahead.

 

If you fail to plan, you plan to fail.

 

Without an emergency fund, I would not have had enough money to hold onto my business, Downtown Express, long enough to sell it.

This emergency fund should only be used in case of an emergency. Think of it as an emergency parachute. It is better to have one and not need it than need it and not have one.

Those Ups-and-Downs In Business

With a passive income business, your one income does not depend on the hours you work, your income will vary from month to month. Some months may be so rough that you will need extra money to pay your bills. This is where an emergency fund comes into place.

An emergency fund is an account with designated money set aside for emergencies. It can be cash under your mattress or a separate bank account. Either way, having money set aside for a rainy day will help you to get past these.

Don’t Go Into Debt When Times Are Tough

Bad debt (money taken out of your pocket) will be the death of your business. Unless that debt is good debt (putting money into your pocket) your profits will be eaten up and the business will be dead.

By having an emergency fund, you will be able to weather the storms that come in life and business.

Being an entrepreneur, we tend to be optimistic and can hope for the future. Everything is going great when you are making money, but life is hard when you are not. Even worse, when you are going into debt over it.

Sudden Large Expenses

No matter what type of business you run, sudden expenses come up.

Not only that, what about sudden family expenses? Your teenager needs braces, Your dog is sick and needs to go to the vet, your family reunion is a $2000 plane flight away. All of these things will come up eventually and you need to make sure you can afford them.

If you run a rental property business like I do, you may need to replace a main water line and that could cost $2000-$4000.

capita

Be ready for those expenses by saving for them and keeping your money in a savings account. I suggest Capital One 360. They give a current monthly interest on their money market account of 1.40%!

That is amazing!

Go to Capital One and get signed up today and get up to $100 just for signing up.

Helps You To Not Live Paycheck to Paycheck

J.O.B. actually stands for Just Over Broke.

When you are living paycheck to paycheck, sale to sale, or month to month, you are letting life pass you by. Without cash on hand to buy the things you need, want, or desire, you are missing out on great things.

By having an emergency fund, you get in the habit of saving money for future use. Buying a new investment property, vacation to Hawaii, or even things like remodeling your kitchen.

All of these are possible with money AND not advisable if you need to go into debt to pay for them.

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Where Should You Keep Your Emergency Fund?

Here are some prerequisites to where you should keep your emergency fund:

In a Safe Place

Not under your mattress where a home intruder can swipe quickly. You want to keep it in a safe place that can keep thief’s away from it.

Two places would work fine:

  1. A secure bank
  2. A secure safe in your home

Make sure it is hard for others to steal.

Liquid

Not like water, preferably still in cash.

It is not recommended to put the emergency fund in a commodity, stock, or real estate. These are all hard to convert to cash which is how you will pay for those unexpected expenses.

So, don’t buy gold with it, mutual funds, Certificate of Deposits, or something else that you need to convert into cash.

Cash is king so make sure you keep your emergency fund that way.

Accessible

Quickly able to pull the money out of your safe or bank would be preferable.

The goal is to be able to use the money when you need it. Not 2 weeks after you need it.

Earning Interest

Inflation is, on average, 3%.

If you just keep your money without earning interest, you are actually losing money. 3% per year to be specific.

That means, your $20,000 in emergency fund will only buy $19,400 worth of goods the next year after you save it. Be sure that you are earning interest.

Again, Capital One 360 is currently giving 1.40% EVERY MONTH in interest on your money. That is cash back in your pocket every month.

If you sign up with my link below, they will give you up to $100 just for signing up!

Get up to $100 using the link below to sign up!

www.masterpassiveincome.com/capitalink

 

With an example of $27,000 saved in an emergency fund, you will probably earn about $30 a month in interest.

Wouldn’t it be great to have another $30 more than you had last month for doing nothing? A normal savings account at Chase, Bank of America, or Wells Fargo, it will take you the entire year to earn $10 in interest.

How do you set up an emergency fund?

There are many different thoughts about how to plan for an emergency fund. You can go by your expenses, your income, your future purchases, etc. The best way I have seen to plan for an emergency fund is to have three to six months of expenses saved.

This would be any and all expenses you and your business will have during an average month.

If your total expenses for you and your business is $4500 a month, you will use that amount and multiply it by how many months you think you may be without any income if there is an emergency.

To be on the safe side, I recommend having six months saved. You could have less, but you are probably not as prepared as you should be.

For the $4,500 per month example, a six-month emergency fund should have $27,000.

I know, I know. You may say to me, “$27,000 is a lot of money to save up! How will I ever get that much?” Honestly, if you are asking that question, I suggest you put more effort into building your business to make more money. When you make more money, you tackle two potential problems.

  1. You are able to save more money faster to fund your emergency account.
  2. You now have a stronger business which leads to increased income.

Set Up Your Emergency Fund Today!

By having an emergency fund and a budget, you will plan well for future problems that may occur.

What are your thoughts?

Leave a comment below.

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Should You Have an Emergency Fund as an Entrepreneur