Why Do Solopreneurs Need an Emergency Fund and How to Get Started?

Being a solopreneur comes with excitement and control. You are your boss, setting your hours and chasing your passions. However, this independence also brings unique financial challenges. 

As a solopreneur, your income isn’t just tied to your skills; it’s at the mercy of unpredictable events. A sudden client loss, equipment failure, or a health crisis can derail your business overnight. Recent data shows that nearly 50% of UK adults want to establish their own business by 2025. 

According to Enterprise Nation, newer generations are particularly pushing the trend. Over 60% of 18- to 30-year-olds plan to set up a business, as do 51% of 31- to 40-year-olds. Yet many rookie solopreneurs overlook a critical safety net: the emergency fund. 

Unlike traditional employees, you don’t have paid sick leave or employer-backed safety nets, making an emergency fund non-negotiable. This blog post explores why this financial cushion matters and how to build it without stress.

The unique financial risks solopreneurs face

As a solopreneur, your financial risks differ from those of traditional employees. According to the UK government’s 2023 business population estimates, nearly 75% of businesses have no employees other than the owner. However, they employ over 4,480 individuals and have a turnover of over £1.5 million. Moreover, their figures rose by 380,000 (14%).

This means millions of people depend solely on their businesses for income. Your revenue likely varies from month to month. You might deal with seasonal fluctuations, delayed payments, or client dry spells. Without a company safety net, every financial hit lands directly on you. The IR35 Spotlight 2023 report by IPSE reveals that 10% of self-employed contractors are out of work. 

Additionally, the Office for National Statistics (ONS) reckons that nearly 700,000 solopreneurs have quit the industry since 2020. To make matters worse, 25% of freelancers considered quitting due to the burdens of the living standard. This proves your business and personal finances often blend, making financial planning even more vital. 

An emergency fund isn’t just about covering bills. It’s about preserving mental bandwidth. According to Newswire, 45% of solopreneurs were unsure of their business’s survival. In contrast, less than a quarter of small business owners with more than one employee shared the same beliefs. 

This is because solopreneurs aren’t protecting their business enough. Just over a third of solo businesses have business insurance. In comparison, over 60% of small businesses with more than one employee are insured. 

What constitutes a solopreneur emergency?

For solopreneurs, emergencies come in many forms:

• Equipment failures requiring immediate replacement
• Major client loss, creating sudden income gaps
• Market downturns affecting your industry
• Website crashes during peak sales periods
• Personal health issues preventing you from working

Any situation that stops you from earning or requires unexpected spending qualifies as an emergency. Unlike larger businesses with backup systems and staff, you’re the critical link in every part of your operation. Medical emergencies, in particular, present devastating challenges for solopreneurs. This brings us to the next part.

The hidden costs of unexpected medical emergencies

When you can’t work, your business stops generating income as expenses pile up. These situations can arise without warning. Take, for example, a recent incident in Colorado Springs, where a road rage incident led to one fatality and three hospitalisations. 

KRDO NewsChannel 13 reveals at least two vehicles were involved in a road-rage, resulting in a crash. Such accidents cause immediate medical expenses and potential long-term recovery time. These unforeseen events remind us that accidents can happen to anyone at any time. 

If you’re hospitalized after an accident, your business essentially pauses. Bills continue while revenue stops. Recovery might take weeks or months. An emergency fund helps manage necessities during this downtime. Working with the appropriate specialist lawyer, in this case, a Colorado Springs auto accident attorney could help secure compensation. 

However, legal proceedings take time. This is when your emergency fund keeps you afloat. It bridges the gap, covering immediate costs like medical care or lost income while your case is resolved. Beyond immediate financial relief, a skilled lawyer can guide you through claiming compensation for damages. 

According to Springs Law Group, it can include covering medical bills, lost wages, and even pain and suffering resulting from the accident. Their expertise ensures your rights are protected, and you have the best shot at a fair settlement.

Sizing your emergency fund and some practical steps

Financial experts suggest your emergency fund should ideally cover 3–6 months of essential expenses. However, solopreneurs should consider aiming for the higher end of this range due to their irregular income.

Calculate your monthly essential costs:

• Business expenses (software, services, workspace)
• Unpredictables: Equipment repairs, legal fees, or sudden travel
• Personal necessities (housing, food, utilities)
• Healthcare costs
• Minimum debt payments

Multiply this by 6 to determine your target emergency fund. Start with whatever you can, even if it’s just £500, and build from there. Start by opening a separate high-interest savings account specifically for emergencies. To make savings easier, automate transfers to your emergency fund on paydays. Consider these steps:

• Set a monthly savings goal, even if small
• Cut unnecessary expenses to boost savings
• Deposit windfall income (tax refunds, large client payments)
• Review and adjust your target every few months

You can also build personal and business emergency funds separately, with the former covering at least 6 months of operating expenses. 

Finding additional financial support

Beyond personal savings, you can explore other support options. The School for Social Entrepreneurs offers various funding options for social-impact businesses, including grants and loans. Interestingly, the School for Social Entrepreneurs doesn’t just provide learning programmes. 

They actively connect people like you with funding opportunities to kickstart or expand your ventures aimed at making a positive impact. This includes grants – money you don’t have to pay back – available through many of their support schemes. They also readily point you towards other helpful organisations that offer financial assistance. 

So, while building your emergency fund, remember that there are avenues for grants and potential social investment that could provide an extra boost.

People also ask

Q1. How quickly should solopreneurs aim to build their emergency fund?

Don’t pressure yourself to build it overnight. Start with a mini-fund of £1,000 or £500, then gradually work toward your full 3-6 month target. Most successful solopreneurs take 12–24 months to build a robust emergency fund while balancing other business investments and growth.

Q2. Should solopreneurs keep business and personal emergency funds separate?

Absolutely! While tempting to combine them, separate funds provide clearer financial boundaries. Your business emergency fund covers operational costs during downturns, while the other handles household expenses. This separation helps maintain professional financial discipline even during crises.

Q3. How can solopreneurs protect their emergency fund from inflation?

Inflation can undermine your emergency savings. Consider laddering some funds in short-term treasury bills or high-interest money market accounts, while keeping a portion immediately accessible. Reviewing your fund’s allocation quarterly helps you balance safety with preserving purchasing power without taking unnecessary risks.

As a solopreneur, your emergency fund isn’t a luxury, it’s your business’s lifeline. When built properly, it provides peace of mind and enables better business decisions. Start where you can, be consistent, and make it a commitment. Your future self will thank you when the unexpected occurs.

Remember: the best time to start building your emergency fund was when you launched your business. The second-best time is today. As a solopreneur, you’re already resilient. Pair that grit with financial preparedness, and you’ll weather storms without losing momentum.

Photo by Kelly Sikkema on Unsplash