Thinking of pursuing the lifestyle of an entrepreneur? You can read as many articles containing tips for entrepreneurs as you like, but until your mindset shifts gears to out of the box thinking and your work is established, there is one common theme you should know that successful entrepreneurs do: they build up a stash of emergency savings.
Emergency savings should be put away as a reserve in times of need such as when problems with your house occur, health problems arise, or unexpected payments crop up.
Most entrepreneurs embarking on their new ventures understand the importance of having a little cash on the side. They are always stockpiling and saving money where they can and here’s why you should as well.
Financial problems hit when you least expect.
Roof Repair or Replacement
In a survey of homeowners, 58% reported that they planned on spending money to improve their homes this year. While some may be making cosmetic changes, many will be confronting structural improvements. One of those is the roof. A well-built roof is essential to a home and can be costly to fix or redo if a problem is suspected.
On average, U.S. News reports the lifespan of a roof is anywhere from 20-50 years. This range in life is subject to the type of roofing material used, the amount of routine upkeep, and the climatic conditions it regularly endures.
Roofs made from an asphalt or a shingle composition have the shortest lifespan. Slate, copper, and tile can last more than 50 years. Asphalt shingles are less expensive than metal type or tile shingles, but you must weigh out the pros and cons. The initial cost to install may be cheaper, but it’s worth the potential for repairs and a shorter life expectancy?
If you live in humid areas or where the weather can reach extremes, hot or cold, your roof is more liable to damage. Snow accumulation can cause warping and damage if it gets too heavy. General signs of roof repair include leaks, lifted shingles, warping, splitting, or pooled water. Not only are these individual problems, but one can lead to the next, exacerbating the issues and increasing the value you could spend on repairs. If problems escalate too much, you may need a new roof altogether and that emergency savings will be a lifesaver.
In addition to roofing repairs, emergency savings are good to set aside for plumbing issues. The plumbing system, protected by a pristine roof, is the circulatory system of the house. It moves good water in and waste out. A leak or break can start as a minor problem, but can quickly morph into more serious issues if undetected or left alone. Signs you may be in need of plumbing repairs range from visibly dripping faucets and clogged drains to water spots on the ceiling, mild flooding in the basement, or even a noticeable increase in your water bill. Even in new houses, it is necessary to pay close attention and identify any potential issues early. This will save you money later.
Depending on the job, HomeAdvisor reports the cost of a plumber in 2019 can range from $45 to $200 per hour or some may charge a flat service fee around $300. Others still, may charge for each individual repair. The best way to decide what you can afford is to have them come by for an estimate. Even then, it is ideal to have emergency savings at the ready in case the plumber discovers more than what they originally bargained for once they get started working.
Car Maintenance, Damage, and Repair
One of the most relied on means of transportation is our vehicles. Even with car insurance, emergency savings should always be put aside for cars. Paint and body repair can quickly break the bank. What may seem like a minor repair on the outside, might actually require more time and labor to assess what is going on underneath the damage. Additionally, body repairs often require specialized tools and equipment.
A simple scratch from an accidental fender bender may seem harmless, but that minute scratch exposes the metal frame of the car, leaving it vulnerable to rust and corrosion. The extent of the scratch determines the amount it will cost. Superficial scratches may be easier and cheaper to repair yourself, but deep scratches will require a professional’s job.
Minor paint jobs in an accessible area, such as a bumper or car door touch-up, start at $100. An economy paint job is meant to paint all visible areas of the car. Many body shops range from $250 to $400. This type of paint job does not cover the areas that are not easily seen. If you’re interested in having the entirety of the car body painted, you will want to request a customized total repaint. For this type of paint job, expect to pay between $1000 and $5000.
When it comes to auto body repair, some of the most common costs are associated with windshields, bumpers, and dents.
Repairing small cracks in the windshield start at $50, but extensive damage can run near $900. Bumpers exist to protect vital parts of the car, but a replacement can run between $400 to $1500. Though that may not be cheap, it is certainly cheaper than forking over additional money to repair the frame in the unfortunate event of another accident.
Cost of repairing dents vary depending on severity and whether or not the paint was affected. If paint was not scratched, removing a minor dent can be relatively inexpensive, $50 to $150. If paint is involved or the dent affected underlying mechanisms or interferes with the frame, you can expect to start combining prices and thank yourself for the emergency savings you piled up, just for this reason.
Injury and Illness
As we go through life, it is comforting to know you can afford to visit a doctor if the need arises. Whether it is repeated visits for treatment or the occasional jaunt over to the closest urgent care center, the medical costs accumulate fast. A chunk of emergency savings should be reserved for these needs. In addition to having savings, you should be informed about the options when it comes to emergency medical service. There might be ways to prevent accumulating unnecessary expenses.
Here the question arises: Do I go to an urgent care center or the ER?
The answer isn’t always simple.
A big part of medical costs comes down to the kind of health insurance you have and what it covers. A general estimate from Debt.org reported the average urgent care visit will cost $100 to $150. These numbers assumed most procedures were covered by insurance and the patient was simply charged a copay. If the patient was not covered by insurance, their prices increased as they were forced to pay for testing and x-rays out of pocket. In contrast, the ER averaged $1,389 per visit but was wildly variable based on the medical condition present.
While cost certainly plays a major role in whether someone chooses urgent care or the ER, another contributing factor is convenience. Urgent care centers are typically quicker than ERs. They treat patients on a first-come, first-serve basis. In fact, Debt.org estimates a patient can receive treatment in under 30 minutes. ER’s are notorious for long waits because they provide service on a basis of severity. Someone with a broken bone is going to be put on hold if someone comes in with a heart condition. The average time for a patient, if they are leaving the ER, is 2 hours and 15 minutes.
A third factor to take into consideration when deciding between medical centers is the symptoms you are experiencing. Even if you have robust emergency savings to spend, it is worth taking the time to evaluate what your body is telling you. One, for saving money and two, to receive treatment faster.
In the moment, medical symptoms can be frightening. Take time now to understand that what you are experiencing may be better suited for one medical care type over the other.
The general rule of thumb: If you are uncertain, at all, how severe your symptoms are or might be: go straight to the ER.
It is recommended that if you feel your life is threatened, do not hesitate and go straight to the ER. The ER is equipped with all the necessary medical equipment and knowledgeable staff on site. This way, if the condition is deemed more serious upon arrival, you can be admitted right to the hospital. Some examples include, but are not limited to chest pains, shortness of breath, paralysis, and severe internal pain. When considering an urgent care center, they cover patients who need attention that day, but life isn’t necessarily threatened. This might be earaches, minor burns, and cold or sinus infections.
So while time and cost certainly favor urgent care, know yourself and recognize when you need to make that call. Building up a bank of emergency savings will also help make that decision less taxing during a stressful time.
Tax time is its own stressful time. Nothing will help lessen that stress more than knowing you have emergency savings on hold if you run into tax problems. To avoid using these funds, start thinking about tax time before March and April. Educate yourself on the latest policy changes and how they might affect your income. This will prevent any surprises in fees that might come up when you go to file. In addition to the politics, there are basic measures you can take to better prepare yourself and understand what will be expected when you file.
If you are a new business owner or work for yourself, analyze and map out how your business runs. Depending on your business style and size, you may be required to make estimated quarterly tax payments, file payroll tax deposits, report payments to contractors, report sales tax, and adhere to state and local licensing requirements. These are all areas that, if not done correctly, could penalize your company with fees and taint your business image.
The easiest way to avoid the chance of using emergency savings is to keep up on payments throughout the year. Don’t get behind and always be thinking ahead to the next payment.
Keep detailed records of every financial transaction. If you purchase supplies for your business or donate to a charity, keep the receipt for your records.
File on time. Don’t procrastinate. Procrastinating can be extremely detrimental and you can accrue large tax bills and penalties.
Another possibility to save money is to look into tax credits. Most taxes these days can be processed and kept track of online. These online tax credits are different from exemptions or deductions. Tax online credits directly affect and reduce the total amount of tax owed. An exemption is a portion of income that is not subject to tax, while a deduction is a portion of taxable income that gets excluded from being taxed.
Learning from the Entrepreneurial mindset
The life of an entrepreneur isn’t for everyone, but there are many ways to achieve success. If there is one thing to take away from entrepreneurs, it is there innate ability to stash emergency funds. This tactic is useful to anyone pursuing any kind of work. Life is unpredictable and you never know when that extra money could come in handy.
Every chance you get, set aside a little money to cover household problems. Leaky roofs can escalate. These roof problems might even be caused by insufficient plumbing problems that were ignored. Take care of your car and pay close attention to any dents or scratches that could lead to greater repair needs. Pay closer attention to your health. Take care of yourself and choose the best place to seek medical care. Lastly, pay your taxes on time, keep up on the latest policy changes, and take advantage of any online credits or ways to reduce your taxable income.
The savings is in the details. Catch things when they first appear and the problems are minor. This will help continue to build the emergency savings for a time when it is truly needed.