Portfolio Careers Are The New Job Security: 3 Steps To Protect Your Finances (Overig) 

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It goes without saying that having a bit of cash in your cushions helps ease the flow for folks assembling portfolio careers. In between gigs? A light month of new clients? A payment get lost in the mail? Nothing an emergency fund—or carefully guarded savings—won’t ease. A happy business is one with backup.

Sophia Bera, CFP, knows all too well. She went from being employed with a regular paycheck to launching her own firm this year. Now, when she works with Gen Y clients and freelancers, consultants, or small business owners who have uneven cash flow, she emphasizes the importance of emergency savings. It’s important to save while times are good so you can use your savings to supplement the leaner months.

Traditional financial planning advice suggests squirrelling away 3 to 6 months of income. And if you’re a portfolio worker whose work depends on a number of freelance clients, or you’re single (without the protection of a partner’s income), experts often suggest saving even more. But Bera says that advice overwhelms most people—and they never start.

How Big A Cash Cushion Do You (And Your Business) Need?

“I think it’s as simple as putting a few systems in place, utilizing those systems, and cutting yourself some slack for not being perfect,” she says. Things come up. schedules are busy, and our lives change. But always having a little in emergency savings goes a long, long way toward making you feel like you can handle it. “We’ve got to focus on going for a ‘B’ here. When it comes to saving, do a pretty good job. Even if you’ve got a couple thousand in savings, keep it there.”

If you don’t, don’t freak out about it. Just get started, by spending less.

For portfolio workers and entrepreneurs with the luxury of being employed before launching, cut your living costs early to grow your cash cushion. Bera did just that, while she still worked as a financial planner for a firm before starting her own. Besides giving you more financial security, the exercise helps test whether you can handle lean early years in your portfolio career. Once you’ve gotten accustomed to your new cash flow, you can begin saving (and spending) again.

Learn what you spend. “I always encourage people to figure out how much it costs to run their household and then we can trim discretionary items as needed,” Bera says. (Doing so may reveal that your core monthly expenses are too high, too.) That baseline will help you determine where you may need to pare back. Get real with yourself about minor regular expenses, such as premium cable and Netflix NFLX -1.18% subscriptions, which you may not be using. They add up. Pack your lunch and put up with drip coffee instead of espresso, already.

With your spending in check, saving is easy. Here’s Bera’s system:

Step 1: Deposit all of your income into your savings account, from which you pay a “paycheck” to your checking account twice a month. That way, you can get used to budgeting off of the same amount each month.

Step 2: Set aside 30% for taxes with every check that rolls in.“Sometimes people with uneven cash flow are making really great money but haven’t bothered setting up a retirement plan for their small business,” she says. “A little tax planning and retirement planning can go a long way toward helping you pay your taxes while investing for the future.” If you can afford to, put 10% to 15% or more into an Individual Retirement Account (IRA) to get growing for your golden years.

Step 3: Give your money a job. Bera likes using online high-yield savings accounts, and often suggests Ally.com. She nicknames her accounts: One is earmarked for Taxes. A second is for Emergency Savings, into which she deposits 10% of her income each month, if she can. A third is for Travel.

“I tell clients to put their money in buckets, as opposed to having one big (or small) savings ‘pot,’” she says. “It’s hard to feel good about paying for a vacation when you know you’ve got other bills on the horizon if you haven’t earmarked the money for that spending goal.”

Truth is, Bera says too many people are living off 100% of their income. If that’s you, make amends.

Here’s where your portfolio career can help: You have the flexibility to earn more and protect yourself from fluctuations in your income in a way that traditional workers may not, Bera says.

“We all know that there are no more pensions these days, which is why portfolio careers really are the new job security,” she says. “It’s an asset that you have multiple income streams coming in. If you lose a client, you still have 10 other clients helping you pay your bills and save. I think there can be a lot of financial stability in managing your own career.”

http://www.forbes.com/sites/victoriastefanakos/2013/09/10/how-to-save-for-the-lean-months-in-three-easy-steps/