Emergency Fund for Self-Employed: How Much Is Enough?

Standard emergency fund advice assumes steady employment. But when you're self-employed, income can stop without warning—no notice period, no redundancy pay. Here's how to build a safety net that matches your reality.

Why Self-Employed Need More

The standard 3-6 months isn't enough because:

• No notice period: Clients can leave instantly
• No redundancy pay: Nothing cushions the fall
• No sick pay: Illness = zero income
• No holiday pay: Time off is unpaid
• Income gaps: Work can dry up between projects
• Business expenses: May continue even without income

ℹ️ The Self-Employed Reality

An employee with 3 months notice effectively has a 3-month emergency fund built in. You have zero. Plan accordingly.

How Much to Save

Minimum: 6 Months Essential Expenses

This gives you time to find new clients if work dries up.

Ideal: 9-12 Months Essential Expenses

Accounts for longer dry spells and gives peace of mind.

Also Consider: Business Emergency Fund

Separate from personal, covers:

• Tax payments (always keep this aside!)
• Business insurance
• Essential software/subscriptions
• Equipment replacement

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Calculate Your Self-Employed Fund

Use our calculator to find your emergency fund target.

Calculate Now

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Building a Fund on Variable Income

Strategy 1: Percentage of Every Payment

Every time money comes in, immediately set aside:

• 25-30% for taxes (non-negotiable)
• 10-15% for emergency fund
• Live on the rest

Strategy 2: Good Month Surplus

Base your lifestyle on your lowest typical month. When you earn more:

• Everything above "baseline" goes to savings
• Prevents lifestyle inflation
• Builds fund faster in good times

Strategy 3: Income Smoothing

Create your own "salary":

• All income goes to a business/buffer account
• Pay yourself fixed amount monthly
• Buffer account absorbs highs and lows
• Once buffer is healthy, it becomes part of emergency fund

Tax Savings vs Emergency Fund

These are separate! Never touch your tax money:

• Tax account: 25-30% of gross income, locked for HMRC
• Emergency fund: Separate personal safety net
• Business expenses: Separate if needed

⚠️ The Tax Trap

Using tax savings for emergencies leads to bigger emergencies when the tax bill arrives. Keep tax money untouchable.

Insurance to Consider

Insurance reduces how much emergency fund you need:

• Income protection: Pays if you can't work due to illness
• Critical illness: Lump sum for serious diagnoses
• Professional indemnity: Protects against client claims
• Public liability: If your work could cause injury/damage

When to Pause Building

Once you have 9-12 months saved:

• Redirect emergency fund contributions
• Invest for long-term (pension, ISA)
• Build business reserves
• Enjoy more of your income

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