The importance of an emergency fund

It’s no secret that building an emergency fund can help you to relieve stress and prepare for unexpected financial changes. For flexible workers and freelancers, this is even more important to their success.

While we all know we should be building up our emergency fund, for many of us it can seem a distant goal. Expert opinions vary, but most say that your emergency fund should cover somewhere between three and six months’ worth of living expenses in an ideal world.

When your income varies from month to month, it’s important not only to budget properly in the months you are earning but to maintain a good amount of savings that can help you to keep going if things get rough. Don’t forget that, as a freelancer or small business owner, you’re not entitled to benefits such as sickness cover, so making sure you have your own safety net can be crucial.

There are lots of ways to improve your saving habits, and understanding exactly what you are saving for is a good starting point.

Before we look at how to boost your own savings, we wanted to consider the reasons that an emergency fund in particular is so important.

The benefit of an emergency fund

The benefits of having savings in general is obvious. They allow you to have the things you want, become more secure and improve your overall situation.

An emergency fund is more geared towards times of serious need, when you can rely on it to cover your essential costs until you’re financially secure again.

Depending what constitutes an ‘emergency’ in your life will help you set requirements for dipping into the fund. A general rule of thumb is that the fund should cover unexpected costs or decreases in income, when the spend is absolutely necessary.

That would mean you couldn’t dip into the fund for a holiday, occasional treat or planned expenses such as car insurance.

In that way your emergency fund would normally be separate to your other savings, and that can make it even harder to build to a level you’re happy with.

However, a strong emergency fund will give you the freedom to make important decisions without having to prioritise only your financial situation. Whether it’s quitting a job you hate, saying no to a big contract with a client who has a terrible reputation or moving to a new city, the financial security of an emergency fund will let you lead the life you want.

When you’re a freelancer, it begins to serve another purpose. An estimated 45% of freelancers aren’t paid on time, and when you have rent or mortgage to cover even a delay of a few days can have big consequences. Your emergency fund can act as a buffer while you await payment and can be the difference between a successful freelancing career and a cycle of financial issues.


How much do you need?

As mentioned, a good target is between three and six months’ worth of your total expenses. However, if that seems a little unattainable, it can be better to look at your exact situation to gain an idea of what you really need.

Asking yourself the following questions can give you a better idea of what you really need to be aiming for.

The consequences of a worst case scenario

Consider having absolutely no money coming in. Now take the time to think through exactly where that might leave you.

For a single renter it may be moving in with mum and dad. If you have a mortgage you could lose your house and a lot of money to boot. If you’re responsible for other members of your family, think about what it might mean for them.

When you’re risking making a young family homeless, for example, there’s a lot more at stake by not having an emergency fund.

Existing debt and interest rates

Take into account any debt you currently have and what the interest rates are like. If you’re paying a large interest rate on a lump sum it can be better to prioritise paying that off rather than putting all your money into savings.

For low interest debts like a car loan it’s better to find a reasonable balance between clearing debts and saving.

Your risk of financial disruption

If you are a freelancer or contract worker, these risks are obviously much higher than someone who is employed full time. Take this into consideration when thinking about how much of a buffer you’ll need.

Other savings and streams of income

Think about where else you can get money in a real emergency. If you have a partner who also earns, could you survive on their income for a short time. Do you have any other stashes of money tucked away or available credit you could tap into?

Think about what you would do right now if something drastic happened. If the only answer you can come up with is panic, then it’s time to start putting money aside.


Once you’ve answered all the above, you should have a better idea of where you stand in terms of your financial stability. Aim to save an amount that would make you feel secure, and that is achievable considering how much you can put aside each month.

Getting started

As with any kind of saving, getting started is always the first hurdle. Breaking down your requirements by answering the questions above is a great place to start, as it can give you a focus for the reason why you are saving.

There are many tips out there to help you save, and a lot of them require very little effort to get started.

Save upfront

Once you’ve decided how much you’re saving each month, this one is easy. Set up a direct debit to come out of your account at the beginning of every month (or when you get paid) and forget about it.

It’s an age old trick when it comes to saving, but the ‘out of sight out of mind’ technique is still one of the most effective when it comes to saving.

Stash any extras

Anytime you get any unexpected extra money, put it straight into your savings. If you didn’t know it was coming then you aren’t relying on it for the rest of the month, and it’s a great way to give your savings a little boost.

Go through your budget

Look through your normal spending every month. Are there any areas you can make cuts? Redirecting redundant old direct debits that you’ve set up and forgotten about into your savings can be a great way to save more without having less in your current account.

If you notice that you’re spending £20 a week in Costa, buy yourself a nice travel mug to make coffee at home and pop that money in your savings. Over time, little changes like this can have a big impact on the amount you’re saving.

Don’t check your balance everyday

Constantly checking how much money is in your savings account can be disheartening and make you more likely to give up in the early stages when you’d rather use that money to treat yourself.

Try and wait a bit longer before checking, so that you feel more positive about seeing the amount grow.

As a freelancer or small business owner, have you ever benefited from having an emergency fund, or looked back and wish you had one? We’d love to hear your stories below!

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