Building An Emergency Fund As A Safety Net

Most founders think they have an emergency fund. Until they actually need one. They set aside a vague amount that feels right. But when the revenue dips, it barely lasts a month. I’ve seen it happen way too many times. That’s why I built my emergency fund with intention and not emotion. Here’s how I did it (and helped my clients do the same, too)- 1. Calculate your 3-month burn rate.  ⤷ This includes salaries, rent, tools taxes. That’s your base. 2. Add an extra buffer for “business hiccups.” ⤷ A slow quarter, late payments, or a surprise compliance bill. Expect the unexpected. 3. Automate 5-10% of monthly revenue into a separate account ⤷ No thinking. No skipping. Treat it like a non-negotiable expense. 4. Revisit it every quarter ⤷ As your business grows, so should your safety net. When you have a safety net, you stop making desperate decisions. You start making better ones.

The recent fires in LA and the surrounding area got me to thinking more about personal financial planning like a CFO - Financial Planning for Natural Disasters Natural disasters—whether wildfires in LA, hurricanes, floods, or earthquakes—remind us how unpredictable life can be. In business, planning for worst-case scenarios is a cornerstone of financial strategy. It should also be a cornerstone of personal financial planning. Here’s how you can apply CFO-level thinking to protect yourself and your family when the unexpected strikes: 1️⃣ Start with the Worst-Case Scenario In business, we ask: “What’s the absolute worst that could happen?” Then we plan backwards. Apply the same approach:  - Imagine the worst: Complete loss of your home, extended evacuation, temporary unemployment, or medical emergencies.  - Assess the financial impact: Costs for temporary housing, replacing possessions, and covering expenses without income.  - Prepare accordingly: Build a disaster fund specifically for worst-case events. This goes beyond a standard emergency fund—it’s money you may need fast. 2️⃣ Build a Financial Safety Net Just as companies maintain cash reserves for downturns, you need liquid savings to cover immediate needs. A good starting point is 6–12 months of living expenses. If you’re in a high-risk area, consider aiming for more. Don’t forget insurance: - Review your homeowners’ or renters’ insurance for coverage gaps.  - Add disaster-specific policies like flood or earthquake insurance if needed.  - Ensure your policy includes temporary living expenses if you’re displaced. 3️⃣ Create an Emergency Plan Financial preparedness goes hand-in-hand with physical preparedness:  - Access to cash: Keep a portion of your emergency fund in a high-yield savings account and some in cash for quick access.  - Digital backups: Store critical documents—insurance, IDs, bank info—securely in the cloud for easy retrieval.  - Budget for essentials: Make a post-disaster budget prioritizing food, shelter, and transportation. 4️⃣ Regularly Stress-Test Your Plan In business, we stress-test forecasts to see if our plans hold up under extreme conditions. Do the same with your personal finances:  - Ask yourself: “What if I lost my home tomorrow? Do I have enough to cover temporary housing and replacement costs?”  - Adjust your savings and coverage annually to keep pace with inflation and changing risks. 5️⃣ Prepare for Recovery, Not Just Survival  The aftermath of a disaster can be just as challenging as the event itself. Plan for:  - Long-term rebuilding costs.  - Legal or insurance claims processes.  - Temporary loss of income if you can’t work. Think about your financial resilience in phases: immediate survival, short-term stability, and long-term recovery. Planning for the worst isn’t about being pessimistic—it’s about being prepared. #FinancialPlanning #DisasterPreparedness #Resilience #CFOperspective 

Your emergency fund probably isn't big enough. There, I said it. Most financial "experts" are still pushing the same outdated advice: "Save 3-6 months of expenses and you're good to go!" This could be dangerous for most business owners and high-earners today. → If you're bringing in variable income → If you're self-employed → If you have people depending on your earnings The standard 3-6 month emergency fund is playing with fire. Here's why: When you run your own business or have commission-based income, market downturns and economic factors don't just affect your investments—they hit your actual income. Exactly when you might need cash the most, your ability to generate it could be compromised. I've seen it happen: → The fitness business that had to completely shut down for 4+ months  → The sales professional whose commissions dried up for 3 months None of them anticipated these scenarios. All of them wished their cash reserves were larger. For business owners and variable income earners, this is probably more in line: → 6-12 months of expenses  → Separate business and personal emergency funds → Additional cash reserves for business opportunities This isn't about fear. It's about freedom. A robust emergency fund doesn't just protect you—it empowers you to take strategic risks, seize opportunities, and sleep soundly regardless of market conditions. Will this approach mean slower investing in the beginning? Maybe. Will you thank yourself when (not if) the unexpected happens? Absolutely. I'd rather see a fully funded emergency fund before focusing on growth.