Why You Need to Build an Emergency Fund Now
Over half of the people in the United States do not have enough money to cover 3 months of expenses according to a study by FINRA (FINRA Investor Education Foundation National Financial Capability Study, 2012). This means that if for some reason, they were to lose their job, it could be tough to cover the next few months’ worth of expenses. As a business owner, you cannot be in that half of the population. You absolutely need an emergency fund for many reasons.
Owning a Business is Risky
Most people who have an emergency fund have one to shield themselves from unemployment. So as a business owner, you may think “well, I can’t get laid off. I’ll be ok.” It doesn’t work that way.
As a business owner you are still at risk. Your income could suddenly change without a way for you to know. We can very easily lose clients due to a variety of reasons. Since you’re not employed, it’s still up to you to figure out how to pay your bills.
Because of this inherent risk of entrepreneurship, you actually need to have an emergency fund more than the average person. Your fund should be at least 3-6 months, with 6-12 months being better. You can start slow, but saving this should be a main priority as a business owner.
Car Emergencies
Even if you don’t suddenly lose a ton of clients, other emergencies can come up. Owning a car opens you up to quite a few risks.
What happens if you are in an accident? Sure your insurance will pay for part of it. But how will you pay for the deductible, a rental car, or anything else that’s not covered.
Or what if you suddenly need to replace a part like your brakes? These things can pop up without use being able to plan for it. Having a little bit of money saved will mean you can get that part when you need to.
Home Emergencies
In a similar way, emergencies can pop up around the home too. Those can be especially expensive. For example, this spring, my parents learned they would need to replace their roof. It needed to be done by the fall and would cost tens of thousands of dollars. If they didn’t have their emergency fund, their roof could be in serious trouble.
If something catastrophic happens to your home, hopefully insurance will cover it. The problem is, it might not cover it all. You could still be stuck with large bills. Or, the money may be delayed or they could even make you pay for it initially and reimburse you later. Either way, you could end up needing a large amount of cash quickly.
Medical Emergencies
As a small business owner, you can’t take sick leave. If you don’t work, you don’t get paid. So what happens if you get sick or injured and you can’t work for your income. You’ll need your emergency fund to get by until you’re back on your feet.
Plus, you may end up with medical bills. These can get extremely steep in some cases and insurance may not cover everything. Ending up with medical debt can lead down a dangerous rabbit hole that would be better to avoid in the first place.
Unplanned Travel
Another surprise expense that could come up is travel. There is always a chance of a family emergency popping up that could require you to travel for a bit. How will you pay the hotel or plane costs? How will you keep paying your bills if you can’t work during that time. Hopefully this never happens to you, but you always need to plan for the worst case.
Stress Less
Any of these situations could arise with no time for you to plan for them. They’re all bad, but if you at least have a way to take care of them, you’ll be alright.
Having an emergency fund will allow you to financially take care of any of these situations if they happen. You can pay for them and not have to worry. It is a lot easier to have a less stressful life if you know you’ll be okay even in the worst case scenario.
