How to Achieve Financial Security in 9 Steps
When it comes to your business’ cash flow and your general financial security, you’re likely focused on three things:
- How much money is leaving your business.
- How much money is coming in.
- How much is left to save for retirement and investing.
But that’s all assuming your business remains operational.
Emergencies are bound to happen, and, when they do, they’re often unpredictable. So, how do you create the kind of financial security that allows you to navigate emergencies without ever dropping the ball?
This guide explains how.
How to Financially Prepare for an Emergency
First, let’s clarify what kinds of emergencies may arise that force you to put your business on hold or that can otherwise do harm to your cash flow:
- Serious illness or injury
- Family crisis
- Security breach
- Natural disaster
- Large, unexpected cost (e.g. new car, home repairs, medical bill)
- Damage to your vehicle or home
- Job loss
Next, let’s look at how you can financially prepare to mitigate any costs in the face of emergency or disaster.
1. Stop Living Paycheck-to-Paycheck
It’s not easy for creatives to charge a rate that’s on par with the value they deliver without some prospects pushing back.
“Why does it cost so much? I could do it myself for free!”
Which is why some will lowball their prices, in the hopes of avoiding these objections and unfair criticisms. But the second you charge a sub-par rate, you’re opening yourself up to bad clients, unpredictable ebbs and flows of work, and barely profitable projects.
Starting today, focus on building trust into your business so you can charge better fees and not worry about how you’ll save money, let alone be prepared for an emergency.
2. Commit to Your Budget
Just as you need to create a predictable and sustainable cash flow for your business, it’s just as important to make your expenses predictable and even.
To do this, set a budget for both business and personal expenses. As you set aside your earnings for things like your salary, retirement savings, and investments, create another category for your expenses. This will help you from overspending while sticking to your budget.
3. Build an Emergency Fund
While these income-boosting and cost reduction strategies will give you some breathing room during an emergency, it’s even better if you have reserves of cash set aside to cover you during that time.
To create an emergency fund, open a savings account you can withdraw money from without penalty. Automate deposits into the account from your earnings. You can start small, with maybe $10 or $25 a week, to start.
Next, add up your average monthly personal costs. Multiply that number by six. That should be the minimum amount of emergency cash you work towards saving. A year’s worth would be even better though.
4. Create a Backup Budget Plan
Let’s say that an emergency does arise and you have to put a hold on business and income generation for awhile. The last thing you want to do is keep charging full steam ahead with the spending levels you’re accustomed to.
The second the emergency hits your radar, you should default to a pre-planned backup budget.
Look at the non-essential but nice-to-have expenses you pay for now. Remove them from your backup budget. Only essential costs should remain in your backup budget.
Also, consider what else you can afford to cut back on until you get back on your feet at work. Anything you can downgrade for a short while should be adjusted in this emergency budget.
5. Eliminate Credit Card Debt
You don’t want something like credit card debt or loans weighing on you when you take time to deal with an emergency. As you work on getting the rest of your finances in order, be sure to create a plan to eliminate credit card debt, too.
6. Strengthen Your Insurance Coverage
An emergency of any type is sure to cause at least a little turmoil with your finances. That said, there are various types of insurance that can you can offload some of the burden to:
- Health insurance – In case an injury or illness makes it impossible to work.
- Short-term disability insurance – To cover not just the course of treatment, but to provide you with a salary while you’re out of work.
- Renter’s, home, or auto insurance – In case a natural disaster or other structural damage prevents you from working or getting to work.
Check on your coverage levels and make sure you’re confident that you’ll be well-covered. Just in case.
Some Other Things to Do to Reduce the Strain
The above strategies will give you some sense of financial security while you’re busy surviving and recovering from an emergency. However, there are some other things you can do to safeguard your business so it can weather the storm.
7. Plan Your Escape Route
Let’s say a hurricane or earthquake hits and you have to evacuate your home office. Do you know where you’ll go if that happens?
Is there a family member or friend you can stay with and perhaps work from their residence until you can return home safely? Is there a cheap apartment or Airbnb you might rent while damage to your home is being repaired?
Consider how and where you might go to keep your business running.
8. Create a Client Communication Plan
If you should have to go offline — for a few days or a few months — that’s okay. That’s why you’ve worked on building a brand clients can trust. They’ll understand and, perhaps, be willing to wait.
Regardless, you need to do your due diligence and communicate this downtime to them.
To ensure you can do this, save your client contact information in the cloud so you can readily access it when you need to. And have a message written that you can shoot off to your clients to briefly explain the circumstances of your absence and what they can expect in terms of your return.
9. Replicate Yourself
It might be a good idea to have a backup person you can refer clients to.
If your goal is to scale your business, you’re probably already thinking about your first (or next) new hire. Designing this emergency preparedness plan might be the perfect motivator to take that leap.
If you’re not ready to hire anyone, that’s fine. You can’t rush a big decision like that if your business and you aren’t ready for it. That said, how about contacting a colleague about serving as your backup? They can take on your clients when you’re offline, and vice versa.
This way, you know your clients will be in good hands and won’t be left to seek out the competition in your absence.
No one expects a catastrophic event to happen to them, but it doesn’t mean it won’t. That said, you’re in a great position to prepare for it now.
As you grow your business, you’re already looking at ways to be smarter with your money. And a lot of the things you have to do to prepare for a disaster align with the strategies you’re already using to create financial security in your business.
If you run into issues or have questions as you work on these preparations, don’t be afraid to reach out. We’d be happy to help!
Join our Facebook Group
Think Tank for Agency Owners and Freelancers to get questions answered and learn lots of helpful hints.
Does your "profit bucket" have holes in it?
If you are anything like most people in our industry...it does.
Find out the number one thing that is causing your money to leak out of your business. You’ll get your answer... PLUS I’ll teach you how to plug your leak and start taking home more money every month.