Especially when you're just starting out, self-employment can be unsteady. You're not sure when the next client will come or how long the gig will last. For this reason, one financial planner suggests doubling down on your emergency fund. Photo by bark.
Consumer Reports explains:
Tom O'Connell, president of International Financial Advisory Group, in Parsippany N.J. recommends his self-employed clients aim for an emergency savings fund that can cover at least six to 12 months of living expenses as extra protection, just in case they hit a dry spell and have no income. That's double what he recommends for clients with jobs that offer steady benefits. "The worst thing you can do is dip into retirement savings or college savings because you don't have a large enough backup pool," he says.
Experts are all over the place in terms of how much should actually be in your emergency fund. Some say six months of expenses is overkill. Some even say three months is too much — you're better off investing your savings instead. Whatever number and savings vehicle you're comfortable with, the idea is the same: Double down on it if you're self-employed. This helps make up for the instability that often comes with working for yourself. For more detail, head to the link below.
5 Steps to Take If You Plan to Be Self-Employed [Consumer Reports]