May 6, 2016
Episode 103- Why you need an Emergency Fund
It was recently brought to my attention
the potential devastating effect
a simple injury can have
on a professional artist. If the body is
injured it is unable to perform at its highest ability
hindering the artist from being productive and losing the
ability to create their income. Has this ever happened to
you? Have you cut or burnt yourself that you were unable to use
your hands for more then a day? I have!! About 10-years ago while
working late one night the tubing that I was laying some color
stringers inside of cracked, fell apart and exposed my left hand to
my torch. The flame made a direct hit on the nail bed side of those
fingers which put me out of work for almost a month. I was right in
the middle of a large commission so having good
timing and financial luck on my side I was able to pay bills,
rent and survive. Had I not had that deposit I would have been
screwed.
This brings us to the
importance of an emergency fund.
The emergency fund isn't just
their for thr business to survive. its also to help
continuing to pay yourself while out of work.. that being said if
you already have a personal emergency fund then
this doesn't necessarily pertain to you. If you have
a personal emergency fund of at least 3- months of expenses(food,
water, shelter,etc) then you are golden and can relax and
heal faster. If not then what do you do? One can
be resourceful and this episode isn't about
solving that problem. This is about be proactive and
setting aside an emergency fund for your business and
here's one way to go about making this concept
reality.
Hopefully by now you have
gone through the process of determine how much you should
pay yourself either daily, weekly, or bi-weekly. If so you
have a set amount you need to earn in order to pay all your
personal stuff which should only come from the profits of the
business.(refer to Episode 84- Base cost calculations) The
worse thing you can do to yourself is to get into the habit of
selling an order, say for $500.00
and automatically considering that you just made
500.00
Dont lie to yourself,you didnt make $500.00, your
business made $500.00 and now you have to pay the business
First.
subtract the appropriate amounts needed
to ensure you are covering the material cost, daily cost to
run the business as well...your power, water,
cable, WiFi etc. if you are a home based business
you should still treat the space as its own entity which come in
handy as a tax benefit towards the end of the
year.
once you have that figured out your left overs or
Net is the profit.
for example....
$500.00 sale-cost $150.00 to produce in material
costs=$150.00(gas,glass)
power$5.00/day(took 3 days to
produce)=$15.00
misc bills $3.00/day(""""")
=$30.00
total
cost------------------------------------------------------=$195.00(cost)
sale------------------------------------------------------------=-$500.00
(sale)
profit----------------------------------------------------------=$305.00
Once you truly get his down you'll be
able to calculate your weekly salary, savings for taxes
and your emergency fund. This is just one way of setting
this up. Their are other ways but I find this to be
the simplest in the end.
EXAMPLE WEEKLY
PROFITS
If each week your made an average of $1000.00
profit you can then calculate how this money will be
alocated.
1- PROFIT=$1000.00
2- DIVIDE THIS UP INTO
2 SEPARATE CALCULATIONS 75% and 25%
3- a.salary=$750.00-20%(taxes)
($600-pocket $150.00-taxes)
b.retained
earnings=$250.00(75%-emergency fund,25%-retained savings)
($188.00/week emergency fund, $66.00-retained
savings)
if your average monthly cost to run
your studio(rent,power,misc) $800.00
total
it would take you an average of 12-weeks to save
up for the 90-day emergency fund giving you a total of
around
$2400.00-emergency
fund and $800.00 retained savings
As you can see this is only going to happen if you start now by creating good business habits and paying the business first
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