For most people, a single emergency fund is enough to cushion them from unexpected expenses. The standard rule — setting aside three to six months of living expenses — should be enough to hold them over in the face of unanticipated and unavoidable repairs or purchases. But when emergencies can appear in both your professional and personal life, this golden rule of savings may not be enough. Entrepreneurs and freelancers may need to prepare for the unexpected both on and off the job. 

Never Mix Your Personal and Professional Finances

Keeping your personal and professional finances separate is one rule that does apply to every small business owner. This can be challenging to wrap your head around, especially if you built your business out of personal savings. But once you’ve established your brand, you shouldn’t be dipping into personal funds to field professional emergencies and vice versa. 

Why One Emergency Fund Isn’t a Good Idea

Your personal and professional lives sharing one emergency fund is a bad idea — here’s why:

It Complicates Your Accounting 

Dipping into personal savings to put out professional fires may not cause too many problems, provided you have that extra cash to pour into your business. But the reversal is when things can get messy. Moving money out of your business to cover personal emergencies will complicate your corporate bookkeeping and taxes. 

Depending on your company’s size and your purchase, you could be slapped with huge penalties for this decision. Recent case law in Canada fined a business owner for claiming non-deductible capital expenses and operating expenses for a residential property purchased with company funds. 

It Stretches Your Finances Too Thin

Betting all your financial security on one emergency fund puts a lot of pressure on these savings. They might not stretch far enough to cover simultaneous expenses in both your professional and personal lives.

As a small business owner, you put out your fair share of little fires throughout your week. From your POS system falling offline to shipping delays and staffing shortages — there’s never a dull moment.   

Unfortunately, life back at home can hit similar rough patches. And if you’re unlucky, you may need to replace your car battery or patch your home’s foundation at the same time you’re facing problems at work.

Borrowing When You Fall Short

Pulled in two separate directions, your emergency fund might snap under the pressure. Thankfully, online lines of credit are there as a safety net. You can dip into credit to cover whatever your savings can’t handle on their own. 

Before you try to apply for a line of credit in Canada, choose which expense you’ll pay with savings. If you leave your professional emergency for credit, find a business lender for help. If you need to put your personal emergency on a line of credit, contact a personal lending platform instead. 

How to Build Two Separate Emergency Funds

Juggling two emergency funds simultaneously can be hard, but it’s possible. The trick is understanding what you need in both to feel safe. Figure out your operating costs and living expenses for one month. Ideally, both funds cover more than just one month, but this is a good start.

Your choice of bank or financial institution is another important element of the emergency fund. With the right account, you can maximize your rate of return and grow your savings faster. 

Next, it’s time to sit down with your budget to determine how you can set aside your first $50 in both funds. Yes, it can start that small! Until you build up a bigger cushion, you can rely on a business or personal line of credit online in emergencies.

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