Sunday, May 9, 2010

When You Lose Your Savings—How to Deal

I saw a post at Words on the Page about how veteran freelancers handle the "feast or famine" cycle that comes as part of the job. One of the ways I get through that cycle is by having a nice cushion of savings to use in case of emergencies. Most people I know don't save to the extent that I do--but I've found it really necessary, and sometimes this close to life-saving, to have that cushion.

Of course, you can't have it all the time. My first full year in business, I didn't save correctly for taxes--and wound up owing a HUGE tax bill. I wrote the largest check I'd ever written in my life to the IRS, and boy, was I glad I'd had my savings--although I didn't have it any more. I felt naked without it. Vulnerable. Like if anything else unexpected came along, I would be done. I was pretty much in a panic til I managed to bring the savings account back up to pre-tax levels.

Since that year, I've depleted my savings again many times. Two moves in two years will do that. And sometimes I've just needed to get out of the country. I still hate to deplete my savings--I think if I didn't have an "only for emergencies" attitude, I couldn't make it in this business. But so far (knock on wood), the money has always come back.

Put a percentage of everything you earn into savings. This is the most pain-free way of saving I've come across. I put about 25-30% of every paycheck I get into a savings account for taxes, for example. And I never have trouble paying the tax bill, either quarterly or at the end of the year, because that money comes out of my paycheck before it hits my checking account. So I don't miss it. If my savings are depleted, I raise the percentage and put a little more into a separate savings account for emergencies or trips--set aside from the one I use for tax money.

Pay off your bills. Otherwise you get interest and penalties. That's bad for savings. Even if the bill is large and it hurts to pay it, I grit my teeth and do it--because I know I'll be kicking myself in the long run if I try to stretch out payments. I never carry a balance on my credit card, even in lean times.

Cut back. The big thing for me is eating out. It's easy to eat out five nights a week in New York City--plus drinks are expensive. I have one drink at bars and always ask about specials--and I cook dinners at home most of the time.

Look for work. This is also the time when I increase my marketing efforts. I network. I email old clients I haven't heard from in a while. I email new companies I'd like to work with. Whatever it takes.

How do you deal when you need to build your savings back up?

1 comment:

Unknown said...

EXCELLENT advice! I put the whole check in the bank and draw on it from there. Problem is I draw on it from there... ;) I need to move most of it to savings where it's a little tougher to touch.

Time to have parties at home - drinks are a fraction of the cost if you make them yourself. And most often I find if I have to make it, I couldn't be bothered. Though I will say a pitcher of sangria is very satisfactory labor. :))

Thanks for the link hug. :)