One Cushion or Two? How Many Months to Keep When You Work for Yourself
When you work for yourself, you need two savings cushions, not one: a month or more of business costs kept in the business, and a few months of household costs kept at home. They protect you from different things, and money in one can't quietly do the job of the other.
The usual advice, three to six months of expenses, was written for people with a paycheck. It doesn't say which expenses, and if you run a business, that's the whole question.
Here's what each cushion is for, how to size them, and the order that makes sense when you're starting from very little.
Two cushions, kept on two sides. Example data.
The short version
The business cushion keeps the business running through a slow month, so your own pay doesn't change.
The household cushion covers you if the business stops paying you altogether.
Size each one from a bare-bones month, not a normal month.
Build the business cushion to one month first. It's the one you'll use most often.
What each cushion is for
Cushion | Business cushion | Household cushion |
|---|---|---|
Kept in | A business savings account | A personal savings account |
Protects you from | A slow month, a late payer, a large bill | Illness, losing your main client, a long gap in work |
How often it's used | Several times a year | Rarely, but it matters when it is |
Measured in | Months of business costs and your pay | Months of household costs |
The first one is working money. It goes down in a slow month and fills back up in a strong one. The second is what people mean when they say emergency fund, and with luck, you'll never touch it.
Size them from a bare-bones month
A cushion doesn't need to cover a normal month. It needs to cover the month you'd actually live if things went wrong, with the optional spending switched off.
Costs | A normal month | A bare-bones month |
|---|---|---|
Business: rent, software, insurance, supplies | $1,900 | $1,400 |
Household: housing, food, utilities, insurance, transport | $3,600 | $2,900 |
Extras: eating out, travel, subscriptions | $700 | $0 |
The bare-bones figures are the ones to use. They're smaller, which makes the target easier to reach, and they're honest about what you'd really do in a hard month.
A worked example
Cushion | Bare-bones month | Months | Target |
|---|---|---|---|
Business | $1,400 | 2 | $2,800 |
Household | $2,900 | 3 | $8,700 |
Both together | $4,300 | 5 | $11,500 |
Two months for the business and three for the household comes to $11,500. That's a big number to face all at once, which is why the order you build them in matters more than the total.
The order to build them in
One month of bare-bones business costs. In the example, that's $1,400. This is the cushion that stops a slow month from reaching your household.
One month of bare-bones household costs. That's $2,900. Now a bad month at work and a surprise at home can't hit you at the same time and sink you.
The business cushion, up to its full target.
The household cushion, up to its full target.
After the first step, a slow month becomes an inconvenience. After the second, most ordinary shocks are covered. Everything after that is strengthening something that already works.
Give each cushion its own line, so you can see how full it is. Example data.
How many months is right for you?
You'll want more if your income is uneven, if one client provides most of it, or if you're the only earner at home. You can get by with fewer if you have steady retainers, a partner with a salary, or work that picks up quickly.
Your situation | Business cushion | Household cushion |
|---|---|---|
Steady retainers, two earners at home | 1 month | 3 months |
Uneven income, two earners | 2 months | 3 months |
Uneven income, sole earner | 2 to 3 months | 6 months |
One client is most of your income | 3 months | 6 months |
These are starting points, not rules. The test is simple: picture your worst realistic year, and ask how long it would take you to get back on your feet.
Where your tax savings fit
They don't. The money you set aside for tax is money you already owe, so it isn't a cushion, however reassuring the balance looks. Keep it in a third place, and never count it toward either target.
Three common mistakes
One pot for everything. When your business and household cushions share an account, the business ends up spending the household one.
Counting your tax set-aside. It's already spoken for.
Waiting until you can build it all at once. Even a $500 cushion is already doing work.
For more on how to fund each one, see our posts on building a cash cushion on irregular income and an emergency fund when you're self-employed.
See how full they are, free
La Soglia, the free membership of the Money Mastery System, holds every account you have in one place, personal and business together, with no bank connection and no card. Give each cushion its own line, and you'll always know how many months you have.
Bring it to the Collective
How many months lets you sleep at night? Share yours in the Money Mastery Collective. The answers are more varied than you might expect. The discussion feed is open on the free membership.
Questions we hear
How big should an emergency fund be if I'm self-employed?
Think of it as two: one to three months of bare-bones business costs kept in the business, and three to six months of bare-bones household costs kept at home.
Should business and personal emergency funds be separate?
Yes. They protect against different things, and when they share an account, the business tends to use up the household money.
Which cushion should I build first?
One month of bare-bones business costs. It's used most often, and it stops a slow month from changing your own pay.
Do my tax savings count as an emergency fund?
No. That's money you already owe, so keep it separate and don't count it toward either cushion.
References
There are no outside figures in this post. Every number is our own worked example.
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A note on what this is
This article is educational. The Money Mastery System is an educational tool, not financial software, and nothing here is legal, tax, investment or financial advice. The figures and the number of months are illustrations, and the right amount depends on your income, household and risks. For guidance on your own circumstances, please speak with a qualified professional who knows them.
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