Ep 495 – How Much Do I Need in an Emergency Fund: “Business or Pressure” with Allissa Haines

0:00:00.2 Alyssa Haines: Welcome to business or pressure Taking the pain out of Massage Business with me, Alyssa Haines. This is your no nonsense guide to managing your business money. It is our mission to make sure every massage therapist and body worker has the tools to make a living wage in a thriving business. So let's jump in. Today we are asking how much do I need in an emergency fund? So the last few episodes have been a lot of work, if you've been following along. We've been talking about how to make a business budget and how to make a personal budget and it's a lot. It's tough stuff. So today we're going to be a little more mellow and informative without giving you a ton of work to do. And we're going to talk about both business and personal emergency accounts and there's some overlap and relationship between them that we'll get to. So how much do you need in an emergency fund? It depends. Like everything else in money, it depends on your situation. So let's talk through some of the variables and see where you land. So, business first. In a perfect world, I think everyone would have the ideal amount in a business emergency fund.

0:01:29.0 AH: And I think that's six months of expenses, what it costs to run your business month to month and six months of wages, what you take home from that business. To me, six months is the ideal. I don't have to worry about anything. If anything horrible comes up, I'm going to have plenty of time and plenty of money in the bank to make decisions about how my business is going to move forward or not without ending up in greater debt. But that's a lot. Six months of expenses and wages is a lot. So perhaps what's reasonable and practical and comfortable for you is three months of expenses and wage. Perhaps for you, if you have a good personal emergency fund, we'll get there in a moment. Maybe just three months of business expenses is fine. So let's talk about some of these deciding factors in your business. Is it just you? Are you the only one earning income and contributing to expenses? If that's the case, you might want more in the bank. Do you share space with other people who contribute to the expenses? That's helpful. That means your monthly expenses will be a little bit lower and that emergency fund doesn't need to be quite so big.

0:02:45.3 AH: Or do you have several renters who cover most of the cost? And does that even matter? I had a whole bunch of renters who essentially covered the cost of running my office. And a lot of my thinking was, well, if for some reason I can't work. At least all the costs are covered. But then we had a pandemic and none of us could work and so none of the costs were covered. So essentially what would happen to the expenses in your office if you couldn't work and or if everyone else couldn't work? Do you have a month to month lease that would let you get out quickly or are you committed to six months or a year or two years in your lease that you would have to pay contractually? If you are contractually obligated to pay rent for the next two years, you're going to want your emergency fund to be a little bit bigger than if you have a month to month lease that you could get out of quickly. So think through your personal situation and let those factors guide you to decide what size emergency account you need. And then you get to do a little bit of math.

0:03:50.9 AH: Total up your monthly expenses and how much you pay yourself and see what that looks like for six months or three months and make that your goal. Let's talk about personal emergency accounts and there's even more variables here. But my In a perfect world, my ideal goal is that every family has six months of full household income in the bank. What is reasonable and practical and comfortable for many people is just three months of income in the bank. But consider are you the only income or are you the primary income in your household? If you're the only income coming in, you might want that full six months of both business emergency savings and personal emergency savings. If you're not the only income coming into your home, can the income from the other adult or adults carry you if you don't have an income for a while? Do you have dependents? Are you responsible for caring for people inside or outside of your home? You might want to have a little more in the bank to cover lost wages. If there's a chance you have to be taking time off to care for other people, maybe you need a little bit less in emergency funds.

0:05:08.9 AH: Maybe three months of home expenses or three months of your income is all that you need in the bank. If you would be able to increase work and earn more if the other earner in your household had to stop working. It's also worth it to consider do you or your partner or both have disability insurance? Does your state offer any short term disability and what's the waiting period on that? Do you have high deductibles on health insurance if someone got real sick and you had to meet that deductible? Or maybe you even had to meet that annual out of pocket maximum. That includes your deductible and any coinsurance and co-pays and prescriptions and all of that. Could you do that? Do you have what you need in the bank to cover those bills and live? What is your support network like with money or time? Do you have community help to pick up childcare if you needed some free or cost effective childcare to take on a new job? Do you have family or friends who would give you money or loan you money if you were in a hard situation? Is your partner in a stable job or are they in an economy sensitive job or a less stable profession? If you or your partner have a decent retirement savings and are close to being 59 and a half, so you could pull from that savings without tax penalty, maybe you need a little bit less than your emergency count.

0:06:38.6 AH: So obviously there are a lot of factors and you have to think through all your variables and also your own comfort level. What helps you sleep a little better at night? What numbers are you comfortable with? With the knowledge that you could probably benefit from having an emergency fund in your business and or your personal accounts, how do you build it? Because it can seem overwhelming. You can think, okay, I want to have six months of income in a personal savings account for emergencies. And you look at that number and it feels huge because this is a marathon and not a sprint. You build an emergency fund by contributing slowly and regularly. But regularly is the key here. Even if it's $10 a week that you auto transfer from your checking account into a savings account, that's something. Even if every three months you increase it by $5, so now it's 15 a week, that is something. If you are eager to build up your emergency account faster, maybe look through your discretionary spending and see if there's something in your business or personal budgets that you can cancel and put that money into your emergency account.

0:07:56.6 AH: And we tend to look at these little discretionary expenditures and think, well, that's too small to make a difference. But if your household has five streaming services for entertainment and cable, you can probably cancel a few of Those, only have one or two streaming services at a time, and put that remaining 20 or 30 bucks a month into your emergency savings just until you build it up. And how quickly you can build your emergency fund might be impacted by current debt that you're paying off as well. You might decide that while six months is an ideal amount, you just want to get three months of income in the bank and then focus on your debt for a while. And then when your debt is reduced or eliminated, then you go back to building up the savings account and shoot for six months. But do start building the emergency fund because the best way to stay out of debt is to have cash to fall back on when the bad stuff happens. If you ignore having an emergency savings and focus solely on your debt, if something catastrophic happens, you're just going to end up in more debt.

0:09:05.0 AH: So whatever you can do concurrently, again, even if it's just $10 a week, try to get started. And now where do you put it? Where do you put this money for an emergency account? Because you don't want to be investing it. That's not a stable way to store money. You can talk to your financial advisor or your accountant or a trusted person and get their guidance on where to place it. One of the common go tos is to put your emergency fund in a high yield savings account. We want this emergency fund to be liquid. We want to be able to access it when the refrigerator implodes or when someone has to take a month off of work to care for an ailing parent. You want it to be easy enough to get to and you want it to be stable, not like putting it into stocks and bonds. But you also want it to be a little bit harder to get to so that you cannot impulsively rate it for non emergencies. So typically an online bank with a high yield savings account, that means a higher interest savings account is a good bet. Set it up so you can transfer money into another account, but maybe don't make a habit of visiting or looking at the balance on that savings too often.

0:10:14.5 AH: You don't want to get so fast with logging into that account and transferring money that it becomes a frequent thing or it becomes easy to do. Just stash that money away and kind of forget it's there until and unless you have an emergency. So that's kind of your current task. Think through what you could need, what amounts you could need in a business and a personal savings account, and maybe how to get started saving if you haven't yet. All of this financial awareness involves baby stepping. So take your time, do what feels comfortable for you, and then maybe push past that and do things that feel a little uncomfortable, like taking 20 bucks a week out of your budget and sending it to a savings account that you try to forget exists. All right, now that that's wrapped up, let's jump into our chat with a colleague.

0:11:05.0 AH: I am here with Barry Hatfield, owner and solo massage therapist at Main Street Massage in Hudson, Ohio. Hi Barry.

0:11:13.5 Barry Hatfield: Hi, Alyssa.

0:11:14.6 AH: Thank you so much for doing this with me today. And I get to add a little bit more to the intro before I ask you about your business, which is just to say that Barry is one of the people who I have met online, a massage therapist I've met online, who have actually gotten to visit. I got to visit Barry's old office, at least in Ohio, when I was stopping near him overnight for a road trip. And I got to, like, get a little mini NRT treatment, which Barry will tell you about NRT in just a moment. It was like, the most fun middle of the road trip to Illinois overnight stop that I've ever had. So that's my Barry Hatfield story.

0:11:51.7 AH: Barry, tell me a little bit about Main Street Massage.

0:11:54.7 BH: Yeah, I work by myself. I have. I've been in business for almost 16 years now. A big thing that's helped me the last few years is I learned neural reset therapy, which is a great addition. It really is great for pain relief. It's great. It kind of smooths out. There's economic slowdowns. People are always in pain. It's great for whoever's using it because it's. It's really easy on your body. So I highly recommend looking into that.

0:12:25.8 AH: I had taken the class already, but hadn't started using it much. And then Barry did a little bit on me and then loaned me the videos. And I actually. There's actually a few moves, like, mostly for shoulder stuff that I use pretty regularly now. And I really liked it. I liked the class. What do you do that keeps clients coming back? 

0:12:43.5 BH: What I do borders on the extremely obvious, is that. And what I do is give people what they want. So if somebody comes in and they say, my neck is really hurting, I work on their neck. If someone wants to relax, I give their massage to help them relax. And I have written a blog post about this, kind of equating it to, you know, you take your car in, your brakes are just shot, and you really have to have your brakes fixed. And you go back and pick it up at the end of the day and you say, well, the brakes done? They say, well, we worked on the air conditioning, we changed the oil, we rotated the tires. We're like, yeah, that's great, but what about my brakes? Because that's the problem. And like, well, we did a little bit, but we didn't fix them. I'm like, that's the whole reason I came in, is to fix the brakes. People are coming to you for a reason, addressed whatever they came in for.

0:13:36.9 AH: So what do you do? And I know, I just realized, I forgot to mention Barry has a phenomenal. Blog on his website. And Barry started blogging ages back, and it was one of the big ways Barry gathers new customers and has attracts the right kind of customers because you can read through his blog and really get the vibe on who he is and what he does and then meet him and be like, you're just like you are online. I totally feel comfortable here. So I'm going to make sure everybody knows about hudsonmassagetherapy.com if they want to see that blog post that you're talking, where you're talking about this. And also check out your other stuff because it is prolific and really good. What do you do when someone comes in and they're like, my shoulder hurt or no, I've got that not behind my shoulder blade. And of course you're going to work behind that shoulder blade.

0:14:29.9 AH: But how do you communicate to people. That you might also need to work some other stuff that to them isn't going to seem directly related, but to you, you know it is.

0:14:41.0 BH: Yeah. So I try to explain to people everything is connected and if I'm going to do something and they know that they came in because their shoulder hurts, I'm going to say, well, your shoulder is connected to this muscle. And I'll do an assessment, feel what things feel like. And I'll say, you know, this feels a little tight. I think we need, we should work on this with everything else we're going to do. And if people know what you're doing and why you're doing it, that's. That goes a long way related to that. I also try to work on whatever they, whatever their big problem is first. Because say you come in and you say, my back is just hurting. And you usually start with the neck and you work your way around and you do the back last. Well, they're laying there the whole time thinking, how much time are they going to have to work my back? My back is the problem. I want my back worked on. So be pretty flexible. Work on the back first and then go from there. That way they can take care of that and then they can really relax because they know you addressed their problem.

0:15:47.1 AH: I have a shtick that I do when people come in and they're like, I love lots of massage on my feet and I tend to start people face up and then I do a ton of footwork at the end with my fancy peppermint cream and all the stuff. I realized the first handful of times I was like very early in my career when I had people who were like lots of extra foot massage that I didn't give them the heads up that the bulk of the work on the feet was going to be at the end because I have a really thick peppermint foot cream that I don't want to be like touching their feet and then touching their face or the rest of their body with it. I remember being like halfway through a massage and I did a little bit of foot stuff just when they were facing up and then I flipped them and they're like, is that all you're going to do on my feet? And I realized that all I had to do was tell people, hey, you're going to notice I do a little bit of foot massage when you're face up.

0:16:38.5 AH: I'm saving the and I will save plenty of time and use my fancy peppermint cream at the end and you're gonna get a really long foot massage at the end of the treatment. Is that okay with you? And they always say it's okay because then I have assured them so they don't have to like be anxious on the table for the first 45 minutes that I'm not gonna get to their feet. And it was such a silly thing for me to be like, oh, I should just tell them. So if someone's got a low back thing, but you really need to start on their hamstrings because there's something going on and you just know, know in your gut, all you have to do is tell them, right? 

0:17:10.6 BH: Yeah, yeah, absolutely. Like I said, it's just so obvious. But you have to really accept that and say people come to you for a reason. Okay. If you don't give them what they came in for, they're going to go somewhere else.

0:17:23.7 AH: So I have a question. When you do the intake, so if I come to you and I'm like, yeah, I'm having some headaches and my shoulder's really tight and you give me instructions to like how to get on the table or whatever. Do you repeat back to people? So my priorities are your neck and your shoulder or how do you do that to make sure that you remember in your head what your priorities are and they know that you have heard them.

0:17:47.2 BH: Pretty much I'll repeat what they say. They will say, you know, my low back hurts and I'll ask what kind of movements make it hurt or which side is it worse on? And just kind of see if there's anything specific that we might need to do, but I'll tell them, okay, you said your back is the big problem, so let's work on that first and then go from there.

0:18:08.4 AH: I think this was a beautiful illustration of really good client communication, which is you know, how you keep people coming back. Thank you, Barry.

0:18:17.5 BH: Thanks for having me.

0:18:19.1 AH: If you have questions about running your massage business or an idea for an episode, reach out via email businessorpressure@abmp.com you can also find me building websites and money coaching with massage therapists @deepbreathdigital.com make sure you're subscribed to ABMP's podcast so you don't miss a beat. I will see you back here for the next episode. I can't wait.