Why Streamers Need an Emergency Fund
Do you have enough cash? I don’t mean in your wallet, I mean in your bank account. Also, how do you define “enough”? Perhaps it’s enough to help you make the transition to full time. It could be enough to help you get through seasonal changes in your business income. Most certainly it should be enough to help you get through tough times like injury, illness, or just bad luck. You keep that cash in your emergency fund.
What is an emergency fund?
An emergency fund is an easily accessible account that holds cash you can access in a moment’s notice. The simplest example is a checking or savings account at a bank. However, it should be separate from the account you use to pay your monthly bills.
How much do I keep in the account?
Your emergency fund should hold enough cash to get you through an emergency. That amount varies wildly from person to person. However, there are some good rules of thumb you can use. First, you want your emergency fund to be a multiple of your monthly personal expenses. In this case, I mean necessary or committed expenses. That would include things like rent, student loan payments, car payments, some food, etc. It does not include going out, saving for retirement, or travel. After all, those are the things you’d cut if you were in a true emergency and short on cash.
So, what do we recommend for your emergency fund? For someone with a relatively stable job who feels confident they could find something new if they were laid off I recommend about 3 months of expenses. However, if you’re self-employed (like you are) then you need a lot more. Why? Because it could be that the emergency that sets you back is an injury that prevents you from streaming. If you’re not streaming then you’re not earning as much income. If that lasts a while then you could certainly see a drop off in subs and you absolutely will see a drop off in tips.
However, if you’re a streamer who also has another job then I recommend you keep 6 months of cash. If you’re a full-time streamer living off of your streaming income then I’d recommend about a year’s worth of expenses in cash. That’s a lot of cash.
What doesn’t count as an emergency fund?
There are a lot of things that don’t count as an emergency fund. The first is your bill paying account. You should have both a personal and business checking account that you use to manage monthly finances. Cash flows in to those accounts from your business and flows out for your expenses. That is not your emergency fund. You need something separate that you only tap in emergencies.
Second, your emergency fund is not in investments or in home equity. You need this cash in an emergency. You might need this cash quickly. Neither investment nor home equity are easy to tap unless you already have a line of credit against them. While there are people who argue that you’re wasting potential growth by not investing your emergency fund I think they’re missing the whole point. The point of this fund isn’t to grow. It’s to save your ass if something goes wrong. It’s like insurance. After all, when do most people lose their income and suffer a financial emergency? When the economy goes to crap. Guess what happens to investments at that time? Yeah. Imagine how much it would suck to watch your “emergency fund” drop precipitously at the same time you need it to keep on paying bills.
Finally, your emergency fund is not a promise from friends or family. Friends and family are amazing to have and they’re likely to help you when you need it. However, you shouldn’t be totally reliant on that help. After all, no one wants to be a burden. It would suck to burden the people you love because of your poor planning. A very supportive and well-off network might be a good reason to keep less in an emergency fund but it’s not a good reason to skip having one altogether.
Emergency fund best practices
First, you should make sure that your emergency fund is a separate account, as we mentioned before. A savings account makes the most sense because it tends to get the highest interest rate. Speaking of interest rate, it makes sense to shop around to get the highest interest rate possible since your cash is just going to be sitting there. Banks like Capital One 360 and Ally tend to give good rates, as do local credit unions.
While my wife and I keep our emergency fund with the same bank as our other accounts it could make sense to use another bank. That could be because of higher interest rates. However, it could also be if you know you have a hard time not using cash that’s just sitting there. If that’s the case then putting up a small barrier between you and the fund could be a good idea. It shouldn’t be so large that it stops you from accessing it in an emergency but it should be big enough to give you pause.
In my opinion, the best way to grow an emergency fund is over time. Yes, if you get a sudden windfall of cash it can make sense to use it to fill an emergency fund. Besides that, you should start saving monthly towards this fund instead of throwing everything in it at once. That’ll make the bite of saving a little less painful.
For our final best practice, make sure you’re re-evaluating your emergency fund if your situation changes. If you get married or have a kid you may need more in there. If you reduce your spending then you may need less. Changing jobs, moving, and buying a house are all good times to re-evaluate. Basically, don’t let it sit there unchanged while you change. It would be a shame to have more cash than needed if you could invest it. Similarly, it would be a shame to have too small of a fund if your lifestyle increases.
Time to turn your emergency fund into some emergency fun…amirite? No? Ok. Well anyways, an emergency fund is a key part of everyone’s financial life. It’s especially important for the self-employed as you’re entirely reliant on your own labor to earn income. Therefore, broadcasters (and really everyone!) should make sure to evaluate how much they need to keep on hand. Don’t let yourself fall victim of bad times. Instead, prepare for it and make your life easier.
You don’t have to figure this out alone. This is what we do- help streamers make great money decisions. If that’s something that sounds interesting to you reach out me or schedule some time for a free consult. You can check out what I do here.