The rainy day account
Something I try to maintain during this self-employment of mine is a rainy day account. I’ve been stuck so many times in the past with no savings and suddenly faced with a huge bill for something that it’s something that comes as second nature now.
The ideal amount to syphon off your earnings before you do anything else is around 25% in the UK. This covers tax and national insurance as well as a bit over.
As freelancers, we are often faced with a need for money, such as for holidays or sickness or a drop in work. But we also need to put enough aside to pay any tax or NI bills, any unexpected bills or CapEx purchases for our businesses, and some put some away for their retirement too.
We were watching YouTube the other day when an interview with Steve Vai came on. Vai is a renowned guitarist revered across the industry by fans and peers alike. And I found out that the Diane Wordsworth Accounting Model is pretty much the same as the Steve Vai Accounting Model, apart from the vast difference in income, of course.
As soon as anyone pays me for a job, it goes into a holding account. It’s the account that links to my PayPal account and I keep it running on empty to avoid scams and attacks. Then I immediately syphon off 10% to a rainy day deposit account. Not 25%, as I can’t really afford that yet, but I find that 10% is usually sufficient. And it builds up a lot quicker than you’d think it would.
The balance then goes over to a deposit account where it sits until I need it. And when I need it, the exact amount I need is transferred to a proper bank account that has a debit/cashpoint card *and* a chequebook still. And that’s how I manage my day-to-day spending.
The rainy day account sits there, hopefully growing. And I don’t notice it going out of my wages. Even if I only earn an extra fiver, 50p goes into the rainy day account.
My very first target was to have something to deposit in the rainy day account, which I achieved quite quickly. My next target was to have at least the equivalent of one month’s average monthly outgoings. The next target was £1,000, the next was 3 months’ average monthly outgoings, and so on.
It’s very nice to watch it grow, and it’s comforting to know that you have this safety net. But I can also get a bit resentful about dipping into it. I like to see it grow, I enjoy knowing I have *at least* a month’s outgoings in there should anything happen. But I resent dipping into it.
Recently, I noticed that my glasses needed changing. My eyesight is gradually deteriorating – it’ll be an age thing – and I hadn’t been to the optician for at least 4 years. So off we both went just as soon as we could make appointments following lockdown.
The good news is that my near vision hasn’t changed at all, and I’m lucky in that I only need reading glasses for very tiny small print. The even better news is that my eye health is good too.
Great news if you’re an editor or writer, but my distance vision has indeed deteriorated ever so slightly.
I didn’t *need* any new glasses, but I could have some if I wanted. And as I wanted reactor-light (or transition) glasses, I decided to go for it. I wanted two pairs, one for each car. And I wanted just one pair that did both rather than have prescription distance glasses *and* prescription sunglasses in both cars (i.e. 4 pairs).
Once they totted up the price for me, I did a mental calculation to see if I could afford them. And then I remembered my rainy day account. I could easily afford them out of there and still have plenty left for emergencies.
So, after quelling the initial resentment at dipping into the rainy day account and reminding myself that that’s what it’s there for, I ordered two new pairs of reactor-light glasses (buy-one-get-one-half-price) with a clear conscience.
After seeing that Mr Vai had the exact same mindset, whether he earns a dollar or a hundred dollars he still puts 10% away straight away, I felt vindicated that I also only put 10% away. But it’s enough. Or it is for me at any rate, and I don’t even notice it’s missing.