Risk-proof your life.
That’s what the personal finance experts will tell you.
Well, experts.. The prospect of ‘risk-proofing’ an artist’s life seems pretty dang daunting.
Do you guys ever feel like there’s nothing in this business that you can actually control?
I grew up on a farm out west, and it never ceases to amaze me: you can be the best farmer in the world, but if it rains every day, your crop will suck.
It can be the same way for artists. There are so many talented, driven people, but it seems like there have to be a thousand things going in your favour just to book a gig.
So how do you risk-proof that? Because on top of all that uncertainty, you’ve also got the random stuff that can happen to anyone. A tree falls on your bike. Your hot water tank explodes. Your mouth is FULL OF DECAY AND YOU HAVE NO INSURANCE.
It seems like an impossible task, but it’s not. You may never completely ‘risk-proof’ your life, but you can make it more ‘risk-resistant’.
And to get started you don’t even have to dive into crazy insurance things, or re-order all of your banking.
Just start building a little emergency fund.
It’s not a new idea, and some people don’t even think it’s necessary. But I really believe that for all freelancers not having an emergency fund is not an option.
What’s it for?
It’s for all the stuff that you could never have seen coming. Making a budget, as most of you know, is planning for the stuff that you know is coming and making sure that there’s money earmarked for it. But then sometimes life gives you lemons… and sometimes it chucks pineapples at your crotch.
You can’t know what’s going to happen. An emergency fund is there to help make those times a little less painful.
Because bad stuff happens to good people. And when you’re dealing with less income (as a lot of us are) the margins are pretty thin. Even when you have things working efficiently, you’re chipping away at debt and reducing your spending, one little unexpected expense can have you racking up that credit card bill again.
Ultimately, debt is not your number one problem. Your number one problem is what got you in to debt in the first place. There’s no sense in spending all that time, money, and discipline paying off your debt if you don’t put some tools in place that keep you from sliding back in to debt again.
An emergency fund is one of those tools.
When should I do it?
Do it now. (Or you know, after you finish browsing through the blog.) I strongly believe that an emergency fund is of priority over anything else.
Before paying off debt, before contributing funds to long term saving. Before anything. Build an amount of money that can absorb the unexpected.
Ya. That’s the best question… and one that there isn’t a satisfying answer to.
Experts say you should have 3 − 6 months of salary in an emergency fund. But I think it really depends. Obviously, the more you have in that account the more emergency you’re hedged against.
BUT, keep this in mind: any amount of money can be a saving grace in an emergency. If you drop a fresh hot cup of coffee all up in your computer tomorrow, that 100 bucks you had sitting in an account might not cover a new MacBook, but it does make the bill a little bit easier to manage. And that’s $100 less sitting on your credit card.
So don’t get daunted by the experts, just put a little bit away every month, or every week, and see where you get.
Note: The reason that experts say 3 − 6 months salary is because in the non-freelancer world, one of the biggest emergencies you can have is to lose your job. We deal with job loss (or job gaps) all the time, so I don’t think it really counts as an unexpected cost. For that reason I keep a separate fund that I use when there’s no work. I will definitely talk more about that later. But in the meantime, I believe that the emergency fund should be saved for unplanned expenses.
Where should I put it?
There are a bunch of ideas on where you should keep an emergency fund in order to maximize safety, but try to get a little growth out of it as well.
If you’re just starting out, don’t get fancy. Keep it in a savings account. If you can, keep it separate from your other money so you know it’s there but you won’t be tempted to spend it.
If at some point in the future you’ve got a heap of money sitting there (good for you!) and it’s driving you crazy that it’s not ‘doing something’ (a.k.a. gaining interest), send me a note. We will get a beer and nerd out about all the places you could keep it.
And in the end… I will probably tell you that the safest place… is where it was… in that savings account. Because when there’s an emergency and you need that cash ASAP, you don’t want to be worrying about whether the market is down, or that you have to wait until the maturity of a GIC to have access to your money.
And remember! When it comes to saving it’s not about the amount that you’re putting away, it’s about forming the habit.
So don’t be distracted by building a fund that can solve all of your problems. Just start tucking a few bucks away when you can…
…so that the next time life hands you one of its less-delightful ‘treats’, hopefully it’ll hurt a little less.
Want to start getting control of your money? How can I help?
Financial Planner/Opera Singer
Money never came naturally to me. In fact… I was a bit of a disaster. I remember (very clearly) what it feels like to be ‘financially out of control’.
And honestly, I still get stressed about money… that doesn’t stop… the difference is that now I have the tools to deal with that stress.
And those tools are what’s made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.