There is a balance to be kept between staying in your going-nowhere job for years because you’re scared of making the leap and leaving suddenly, with no plan. I have to say I cringe a little when I read about people who are planning to quit their job next month to start their own business or work online or whatever and they have no backup plan, no safety net, nothing.
If you’re planning a big career move, into freelancing or even just into another job, I think it’s very important to have an emergency fund in case everything doesn’t go to plan. In fact in today’s economic climate, I would recommend that everyone have an emergency fund. Nobody’s job is safe these days.
You can minimise risks by moonlighting alongside your day job while you’re trying to build up your business but I still think it’s a good idea to have several months of savings that you can live off if everything goes wrong. Basically there are no guarantees in this world so your business could be going great and then the next month you find you have no clients. Or maybe you get sick or have an accident and find yourself unable to work.
The cushion of savings you need depend on your personal circumstances. If you’re supporting a family and have a lot of bills and outgoings each month that you can’t easily get out of, having a 6-month backup fun would be ideal. Many people will probably be fine with 3 months. The idea is to take the pressure off slightly so that you’re not suddenly penniless if your business doesn’t get off the ground or you can’t work and to give you time to make other arrangements.
There are many different ways of saving money and the speed at which you can create your emergency fund will basically depend on how desperate you are to leave your job. If you’re dying to get out then it may well be worth cutting out social activities, wearing lots of layers indoors instead of using the heating and generally living a bit of a miserable existence for a few months so that you can save some cash quicker.
Some people will be earning plenty from their day job with enough left over at the end of the month to save and in this situation, it’s simply a case of being careful with your spending and making sure you have a proper savings account set up.
If you’re already freelancing or running your business on the side, it makes sense to use some of this extra money towards building up your emergency fund.
However it is often the case that you spend most of your monthly pay cheque as soon as it comes in and there is not much left over for saving. If this is the case, there are lots of other ways to make money that you can consider.
I’d first suggest having a big clear out. We all accumulate so much junk and you’d be surprised at how much you can raise by selling off the stuff you don’t really need. When I left the UK I sold nearly everything I owned and it provided a big chunk of my travelling funds. You can sell books you never read, burn CDs to mp3s and sell the originals, or try selling old games. I had a bunch of Final Fantasy Playstation games which ended up being a lot more valuable than I ever would have thought.
Clothes are another thing that can hold value, particularly if you have some designer labels and they’re high quality. There are lots of websites set up for clearing out your wardrobe now and you may even find that you get more back for some items than you originally paid.
You don’t need to sell off everything you own like I did but I think most people would be surprised at the amount of junk they have lying around that they never use. Box it up and head down to a car boot sale (or have a yard/garage sale), simplify your life and make some extra cash at the same time!
As well as selling off stuff you want to minimise your outgoings so look for ways you can cut back. Think cable tv, gym memberships that you never use, website memberships, switching your phone to a cheaper contract etc. This doesn’t necessarily have to be forever but it can be a good way of saving some extra cash for a few months and if you find you don’t miss it then don’t sign up again!
If you’re not doing it already, now is the perfect time to start bringing some jobs in after work or at the weekend. There’s no need to leap into freelancing full-time from the start and in fact, I wouldn’t recommend it. It’s much better to get some clients and build up your day job while you still have the security of a regular pay cheque to fall back on.
You don’t even have to do jobs in the field you want to work in longer term. For example, if you are setting up a business that will probably not start making money on it’s own for several month, you may want to supplement with some freelance writing or data entry.
This is all common sense stuff but I think it is often overlooked and it’s really worth planning ahead a little to protect yourself from potential financial disaster.