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Short-term savings when you’re self-employed

Key takeaways

  • Short-term savings when you’re self-employed can help you manage income stability, prepare for emergencies, save for goals, and take time off. 
  • Set aside a little extra savings, if possible, so you can take the time off you need without worrying about lost income. 
Self-employment often means income ebbs and flows. Saving money can be challenging, particularly when you’re getting started. Still, consider that short-term savings may help you feel more confident and ensure you’re on track to meet your personal and business goals. 
Here's what short-term savings can help you do:  
  • Manage income instability – Short-term savings can remove the stress of living invoice to invoice. Having savings can empower you to accept the jobs you want and navigate delayed payments in stride. 
  • Prepare for emergencies – An emergency savings is critical to cover those unexpected emergencies that might pop up in your life—car repairs, medical bills, unplanned travel costs, and unexpected business expenses. It’s a good idea to save 5% of your after-tax income, but you may want to start with a goal of $1,000. 
  • Save for goals – With all the tasks that come with running your own business, goals can fall by the wayside. Intentionally setting and saving for short-term priorities like a vacation, a wedding, or an industry conference may help make sure that they happen. 

Strategies to save for short-term goals

Consider stashing your short-term savings in separate high interest cash management accounts or high-yield savings accounts, where you can earn a bit more while still easily accessing your funds. 
Not sure how much to save? Consider the 50/15/5 rule as an easy way to get started. This approach suggests allocating no more than 50% of take-home pay to essential expenses, then saving 15% of your income for retirement, and 5% for unplanned expenses. If this seems like too much to save, putting away a little bit now and gradually ramping up can be extremely worthwhile. 
Learn more about the 50/15/5 rule for saving and spending.

How much should you have in emergency savings? 

A bar chart showing how many months you should have in emergency savings. A start: 1 month of expenses. Comfortable: 3 months of expenses. Suggested: 6 months of expenses.

Taking paid time off when you’re self-employed

One important part of short-term savings is to consider paid time off (PTO). Even working for yourself, you’ll want to make sure you have time to do what you want, whether that involves taking a vacation, doing some volunteer work, or resting. 
Look back at how much time you have typically taken off in the past and think about if you want to maintain, reduce, or increase that time going forward. Calculate how much income you’d expect to earn during that time. If you divide your yearly total by 12, you’ll know how much to set aside monthly. 
Think about your PTO savings as your “PTO bank.” If you earn $500 per week and you have $500 in your PTO bank, then you have one week of PTO. Consider opening a separate account for your PTO or keep it in a savings account where it will accrue interest. Just be sure not to mix it with your emergency savings. 

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