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What’s an ‘Oh, Sh*t!’ Fund?

  • By Nick Green
  • November 25, 2020

This article originally appeared on the Painless1099 blog.
Being a freelancer can be one of the best careers out there. You get to do what you love and get paid while doing it. You’re constantly building, learning, and ultimately creating value for your clients. Rewarding is an understatement.
Of course, with the reward of self-employment comes responsibility. You’re 100% in charge of calculating how much of your income should be setting aside for taxes and remitting that money to the IRS, finding decent healthcare insurance, and setting up some sort of retirement plan – all things that are managed by an employer in a W2 job. And just when you feel like you’re getting the hang of it, life happens. You get blindsided by something unexpected and all you can say is, “Oh, shit!”. This can cause trouble for the even most talented or well paid of us, which is why it’s essential to always have an “Oh, shit!” fund. Of course, referring to shit throughout this entire article is likely frowned upon at best, so for the sake of reader sensibilities, we’ll refer to these savings as your rainy day fund. We all know what we’re talking about here.
You never know when there’s going to be a family emergency, an injury that keeps you from working, a dry spell of not being able to find work, having a client take forever to pay you for work, or…well, you get the picture. If you don’t have money set aside in a rainy day fund, this can really hit you where it hurts. It’s important to remember that, when you’re self-employed, there’s no recourse through the Department of Labor if a client doesn’t pay and there’s no such thing as drawing on unemployment if you’re suddenly out of work.
Which is why you need to save. Growing up, we used to hear that we should always have enough money in the bank to be able to pay rent for a year if things get turned sideways and you lose your income stream. While this may be a little extreme, being able to cover rent for a few months can be a lifesaver when working as a full-time freelancer. The last thing you want to do is get caught in a position where you are forced to focus more on making ends meet than you are on delivering the quality of work that your clients expect.
Here are 3 steps to creating the perfect rainy day fund.

1. Create a dedicated savings account

The best way to build a buffer of savings is to create a savings account dedicated to your rainy day fund. Even better, consider opening this account at a bank separate from your everyday bank. While it may seem inconvenient to have multiple banks, this is the best way to get your cash out of arm’s reach so you won’t be as tempted to spend it.

2. Save a percentage every time you get paid

The key to having a balanced financial plan is to know exactly how much to allot for specific expenses or savings. Setting aside a lump sum of cash to your rainy day fund whenever you feel like you’re a little ahead adds unnecessary ambiguity to your financial plan. Not to mention you’ll be a lot less likely to actually set enough money aside to solve a problem should one (heaven forbid) arise. The best way to ensure that you’re saving enough for your rainy day fund is to set aside a small fixed percentage of your income every time you get paid. Furthermore, knowing the exact amount that you need to set aside for your rainy day fund from each paycheck makes managing your finances as a whole a lot more palatable.

3. Automate the savings process

If manually separating money for your rainy day fund sounds a little tedious, consider automating the process. With an automated savings account, you no longer have to decide if you want to save (because, let’s be real, nobody wants to save when we can buy new things instead). The good news, new software makes it easier than ever to automatically pull out a small percentage of cash for your emergency fund every time you get income. If you’re anything like me, having this done out of sight and out of mind is the only way to make sure it’s actually going to happen. Digit is great because the app sees how much you have in your checking account and pulls a small portion out of your account for savings. Painless1099 works slightly differently in that it calculates how much you should be saving for taxes before it hits your account based on your tax status and income and then separates a percentage of your income for various savings like your rainy day fund or taxes. This means money you should be saving is separated before you have a chance to spend it, which is a great way to stay out of trouble.
Working as a freelancer is, in my opinion, one of the most gratifying ways to make a living. You get the opportunity to earn income doing exactly what you want, where you want, and how you want. With this flexibility, it’s important to remember that you’re the only person who’s going to  make sure that you’re staying on top of things.Treating your freelancing endeavors as an actual company is a great way to make sure things are running smoothly. If you’re financially aware and prepared, you can continue your career for years to come and have more peace of mind as you continue doing great work!

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