So far we’ve gone over:
The next thing we’ll talk about is establishing a mama and baby emergency savings. As we’ve talked about before, as a freelancer you’re prone to a bipolar income that fluctuates wildly. Prone to periods of feast and famine, it’s hard to get a grasp on your finances and plan for the future, let alone make sure you’re on top of your bills each month.
As for emergency savings, it’s generally recommended to save 6-12 months of your basic expenses. But let’s be realistic. If you’re already struggling to stay on top of your bills, that seems like a tall order. So start out with a smaller emergency fund: say, 1-2 months. We’ll call this your Baby Savings, and your 6-12 month emergency fund your Mama Savings. The Baby
Savings is something you can easily access in case you have a rough month or two, while the Mama Savings is harder to get into.
When can I save for my baby savings?
Whenever you have extra money that is more than Basic Number, I recommend stashing some away in your Baby Savings. If you find yourself having 2 months saved up (congrats!) then you can start putting money into your Mama Savings. The more money you have saved for emergencies, the better of course.
Should I focus on paying off my debt before putting money into my emergency savings?
I would recommend paying the minimum amount on your debt, so you can focus on building your emergency savings. This is because if you have a crappy month and resort to using your credit cards, and you’ll dig a deeper debt hole for yourself, and that’s the last thing you want.
Why two separate emergency savings?
A big part of it is psychological, at least for me. If I can easily tap into my Baby Savings, you won’t feel like you’re taking a step behind or failing, or any of those toxic feelings that go along with having to spend money you’ve saved up. The money in your emergency funds are meant to be spent. The Baby Savings is designed to be more fluid, while the Mama Savings is a little harder to get to so is more of a second resort.
Just to Recap:
Mama Savings: 6-12 months of basic living expenses, kept in a separate bank account
Baby Savings: 1-2 months of basic living expenses, kept in your primary savings account
So there you have it. Next time we’ll go over what to do in times of famine, when you’re having a rough time meeting your basic expenses.
Photo credit: 1025005 via photopin (license)
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