Equip Yourself for Financial Emergencies

As freelance writers, our income is very unpredictable. We can set income goals, market ourselves, and create several income streams, but the truth is that it’s hard to say with certainty how much money we’ll make next month or six months from now. Even with contracts, clients come and go. So do the advertisers and sponsors that pay for our own blogs.

A fluctuating income is just one of the facts of freelancing. It doesn’t mean you have to go back to your day job. Instead, we have to prepare for income fluctuations. One way is have an emergency fund.

An emergency fund is a savings – ideally three months to a year’s worth of living expenses – that you can tap into when an emergency comes up.

What’s an emergency?

Some people have broad definitions of emergency. These are some of the things I consider emergencies that are serious enough to dip into your emergency fund:

  • A major car or home repair that’s not covered by insurance
  • Car and home insurance deductibles
  • Unexpected medical expenses
  • Disability that keeps you from doing work
  • Computer repair or replacement

What’s not an emergency?

  • A broken television
  • Medical expenses that you knew about in advance
  • The latest iGadget

Why an emergency fund when I have a credit card?

An emergency fund keeps you from using credit cards to fund major expenses. You want to avoid credit card purchases, especially if you can’t afford to pay the bill in full, because they cost more money in the long run. Plus, it gives credit card issuers more control over your finances. Credit card issuers can raise your interest rates, create new fees on your account, lower your credit limit (which hurts your credit score), or cancel your credit card. If you don't pay, they can send you to collections, trash your credit report, and even sue you. Use credit cards for convenience, not necessity.

How to Build an Emergency Fund

An emergency fund isn’t automatic. It takes time to build your emergency fund to the ideal level of three to twelve months of living expenses. To make it easier and keep your motivation, start building your emergency fund with a smaller goal in mind, like $500. Then, once you meet that goal, increase the amount.

I recommend putting your emergency fund in a high-yield online savings account like one from ING Direct or HSBC Direct for a few reasons. First, you’ll earn more interest on your savings than you would with many other traditional brick-and-mortar banks. Second, because it’s harder to access the money in the event of a spending attack. A bank transfer takes a few days. Finally, you can set up free transfers into your online savings account from your primary checking account. That means no trips to the bank are necessary.

Having an emergency fund is too important to procrastinate. Take a look at your monthly budget and decide how much you can afford to contribute each month. Let your emergency fund contributions fluctuate with your income. The months you make more contribute more. The months you make less contribute less.

Remember that an emergency fund is different from a regular savings account. This isn’t something you should use as a down payment on a home or for Christmas shopping. Instead, use that money for an unpaid expense that would lead to financial ruin.

There’s your financial lesson for the day! Any questions? Maybe you have an expense in mind and want to know whether it's worth dipping into your emergency fund?

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LaToya Irby is a full-time freelance writer and a graduate of the University of Alabama. She primarily writes about personal finance, freelancing, and other self-employment topics.

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11 thoughts on “Equip Yourself for Financial Emergencies”

  1. This is great advice, LaToya. My husband and I are in the process of rebuilding our emergency fund after reluctantly having to dip into it last fall. My goal is to eventually set aside enough to cover our living expenses for 15 months.

  2. Great advice! I had an emergency yesterday. I took my car in for it’s routine maintenance only and to replace the radiator. I was keeping an eye on my coolant since 2009 because of emergency funds. I had to pull out the credit card. The good news is that I’m slowly building a savings and emergency fund account. I exhausted all my funds to move to Arizona in 2007. I’ve been trying to recapture my investment, but it’s been a slow go. Sigh…

  3. took me ages to get even $100 to “stick” in a prudent reserve – my term for emergency fund. Now I have two month’s worth and growing… you know what else a savings account like that does for me? Makes it easier to negotiate because I don’t have to have any particular client. Love it.


  4. @Rebecca, 15 months of living expenses is a great emergency reserve. You’ll have enough money to cover you in even the biggest disasters.

    @Rebecca, I think car repairs are one of the top unexpected emergencies. It makes public transit a lot more attractive.

    @Anne, you know that is another incentive for having an emergency fund. You don’t make bad business decisions out of financial desperation.

    • I think you only have an edit button on comments when you’re a site admin (so you would for your blog, but not when you’re a different level on another blog). I can check to see if it can manually be set for AFW authors though.


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