I often say that most of the stress we go through in our lives is due to a lack of planning and preparation.
Of course, we cannot prepare for all the unexpected, but when we think about our financial life, planning for possible more difficult times or times with few good projects is extremely important.
We can think of this difficult phase that the whole world is going through regarding the COVID epidemic.
This crisis is very different from other crises that we have experienced in recent years, and even though its impact on the economy is devastating, unlike previous crises (be they of a more political or economic nature), the current crisis was practically impossible to predict.
I am not saying that we can predict political or economic crises, but often a recession gives us some signs that can be used to at least anticipate difficult times ahead.
Now, what do I mean by “planning for difficult times”?
I know that the purpose of this topic was self-employed professionals, because generally this type of professional (I am in this category), the crisis is more exposed because when a crisis appears, they are the first professionals to be dismissed from projects/companies.
Of course, this is not a rule, and permanent employees of companies and consultancies will also be affected, but, in my experience at least, freelancers tend to be first on the list.
My Suggestion
And what do I suggest to you as a way to prepare for more difficult times?
I suggest that you have as little financial planning as possible.
I know many consultants who have great monthly income on projects, but who simply spend 100% of everything they receive monthly.
When I say spend, I don’t mean that they throw money away.
Often, because they have a higher than average income, people end up making big financial commitments (debts), and end up committing a good percentage of their income to fixed expenses.
In normal times, there is no problem with that, but in more challenging times, this situation can become very stressful and totally unsustainable.
Money is a very good tool for anyone, but if it is not used wisely, it can bring you countless problems.
It is important that you have a good idea of what your fixed expenses are per month.
It is not difficult to make this count.
With your credit card statement and a statement from your bank account, you can easily get a good idea of how much you spend on Leisure, Courses, Rent, Accounts, Debt, etc.
After performing this calculation, I also recommend that you see how much of your annual money is already committed to debt (credit card installments or car/home loans).
It is important to know what is committed because in case you become unemployed, these installments are those costs that you cannot “cut” or reduce, as you have already committed to them.
Now, I recommend you to create 3 scenarios:
Minimum: Multiply the sum of your costs by 3.
Medium: Multiply the sum of your costs by 6.
Ideal: Multiply the sum of your costs by 12.
Ideally, you should have the amount multiplied above in a bank account. This is your “emergency” money.
It must be available and must not be invested in any high-risk application.
Having at least the money for 3 months is really the least you should be doing.
6 months I would say it will leave you in a very comfortable situation if you go through a phase without work.
12 months will really leave you alone and make sure you and your family do not lose any sleep if you face adversity in the job market.
It may even seem like an exaggeration of what I’m talking about, or you may be thinking “thinking like this is being too pessimistic”. I totally disagree.
The people who are really successful in life and really have the quality of life, are the people who are prepared for any type of situation.
I have already gone through major financial problems, spending most of what I earned a month and going without a project for a few months.
I learned my lesson.
Nowadays I see so many colleagues going through this, that I took advantage of SAP Steps to carry out this alert and try to help our readers.
Conclusion
I hope this post has ignited an alert for you.
Even though it is unpleasant to have to “separate” a part of your money, which you could use to enjoy, it is an attitude that will bring you a lot of peace in more challenging times.
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A big hug,
Bruno César
