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Solopreneur Money

Jun 1, 2020

If you want to avoid business interruption, you need to prepare for any unforeseen events NOW. As Solopreneurs, we don't have the assistance of an employer to make sure we're covered in an emergency. It's on us to make sure that we have the proper coverage for ourselves and our businesses.

In this episode, I'll cover important savings tips to keep your business running in the event of an emergency, key insurance accounts to keep you covered, and tips and tricks to protect your cash flow. If you'd like to learn how to master your finances, build the life you want, and make sure your business can continue after an unforeseen event, this episode is a must-hear!

You will want to hear this episode if you are interested in...

  • Learning how to prepare yourself for the unexpected [0:53]
  • How much emergency savings to set aside [1:42]
  • Health insurance tips to make sure you have the right coverage [1:51]
  • Taking advantage of a Health Savings Account [2:04]
  • Making sure you have the right coverage with your life insurance [2:48]
  • What disability insurance is and why you need it [3:29]
  • Learning how to protect your cash flow [5:23]

Emergency savings and health insurance coverage

In the event of an emergency, I always recommend that my Solopreneurs have 6-12 months of living expenses set aside as savings. Your emergency savings should cover all of your bills in the event of a disruption to your work.

For health insurance, I recommend high-deductible health insurance plans with a health savings account (HSA). This combination will allow you to take advantage of the lower premium and triple tax benefits of the HSA. The HSA also allows a tax deduction every year for funding the account up to the maximum level. To contribute the maximum amount, you need to have the highest deductible plan designed for the HSA.

There are additional tax benefits when you go this route: 

  1. Tax-deferred growth 
  2. Tax-free withdrawals for health care expenses
  3. Can be used tax-free during retirement

Preparing yourself with the right insurance accounts

Life insurance isn't an easy topic of conversation, but it's crucial to make sure that your family and your debts are taken care of in the event of your passing. I recommend that your life insurance policy cover somewhere between 5–10 times your annual income.

For a more precise number, consider a figure that includes things like:

  • Covering all of your debt
  • College for your kids
  • Making sure your income continues for a specific number of years 

Have you considered disability insurance coverage? This coverage replaces your income if you're not able to continue doing your daily tasks to maintain your business. Most policies cover about 60% of your income, for as long as you're disabled and unable to do your work. Make sure that you have the "own–occupation definition of disability" on your policy, which means that you're unable to perform the essential duties of your occupation, but you can still do something else. The policy will then pay you your disability benefits AND you'll get the additional payout.

How to avoid business interruption and protect your cash flow

Comb through your monthly expenses to determine what you no longer need. Pull out your bank statements to see what programs, subscriptions, software, etc. that you aren't using anymore and get rid of them. Set a goal amount for yourself like a 5-10% reduction to stay focused on your goal of saving money. You can always resubscribe or rejoin if you determine you need something again, but the savings you experience may help you decide HOW essential that piece is to your business.

Do you have clients that you are undercharging or that aren't profitable for you? These partnerships are a drain on your cash flow. If you identify some, make a plan to raise their fees and revenues so they're closer to your other clients. You can also consider what other services or add-ons you can offer your clients to boost your income. Finding ways to build your services is the key to long term business protection.

For a FREE worksheet to help you inventory and evaluate where you are with your business preparedness, check out the "connect" section below. You can also email me for more information or schedule a consultation by visiting my website, linked below.

Connect With Gabe Nelson

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