Personal Emergency Funds How-To

Personal Emergency Funds How-To

Sean: This one is about business – Erika asks, as a business owner, how do you know when pay cuts are needed and how can you prepare your people for it?

Sean: So I don’t think there is a really good way to tell people that “I have to cut your pay.” I can only share how we did in SEO-Hacker last year when clients aren’t paying and no new business is coming in. So we organized the operations to run on the skeletal team and those who needed money income. We arranged for them to have a volunteer program where they can work up to four hours, and we paid their salaries up to four hours. That’s their right salary. We didn’t change. We didn’t cut their salary in half, but we paid the right amount. It’s just that the amount of time that they can work is limited so that we don’t also bleed money needlessly.

Sean: For the skeletal team, we asked them to work at least six hours, and that’s because they are a critical part of the operations and we can’t really shut down the websites of our clients. We still have to maintain it. We still have to do their SEO, and actually, the only thing working for them. Digital marketing is the only thing working for them, so we have to maintain it. We have to keep on doing what we’re doing. We didn’t really strictly cut their pay. We never did that. We didn’t tell them that ‘your salary is going to be cut like this,’ but we made operational changes that helped us to save money while ensuring that our people still have good revenue coming in so that they can live and provide for their families. That’s how we did it. I don’t think there’s ever a good way to prepare people for pay cuts because that’s really a painful thing. It’s a very painful thing to tell your people that you’re cutting their pay.

Sean: As an entrepreneur, what types of scenarios should you keep in mind when creating your business emergency fund?

Sean: We call that a safety net. We call that a safety net or a war chest if you have a lot of legal concerns or problems, we call it the war chest. What types of scenarios? Generally, the rule is you have – it’s like emergency funds, whatever you’re making per month. Multiply that by three to six months. That’s how much you have to have, at least with your war chest or with your safety net.

Sean: So last year, when our clients weren’t paying, what we did was we took out from our safety net, to pay our people three months and that was painful. But that’s what we have the safety net for you know, and I’m glad that we have that, and we didn’t have problems with that. But the executive committee, we decided not the salary during that time, during those three months, that’s March, April, May, I think up to June. So up to four months, we didn’t take any salary so that we can pay our people. And, you know, not a lot of things were happening last year, if we’re going, to be honest, not a lot of things were happening in business, there’s not much action happening, but we still had to maintain what we were doing for our clients. That’s the problem.

Sean: So we still had to work, even though not a lot of clients are paying, and we didn’t have a lot of new clients coming in. So that is why you have to have your safety net. In terms of legal when someone suddenly files a case against you and goes to court. And that has happened with SEO Hacker before you have to have a war chest

Sean: How much should the war chest generally be? Well, it depends on how many times you encounter these problems. Thankfully for SEO-hacker, in the life span of the entire company, it only ever happened once. And that’s because of the problematic person in the team. I’m happy to say that we won every case all the way to NLRC and we didn’t do anything fishy. We went everything straight and everything’s legal and by law. You know, like God will vindicate you. God will be the judge between you. And this person, this rascal changed the case multiple times. I can’t believe there is such a person who exists like that, but I have experienced it for myself. I have used some money in my war chest, for my legal counsel. I have a fantastic legal team. I am very blessed to have them and we won every case. And that’s why you have to have your war chest as well.

Sean: Is it important to save for an emergency fund within your monthly budget?

Sean: Short answer to that is yes, and the explanation is when tough times come so that you’ll not be taking a loan and be indebted with the interest, you should have an emergency fund.

Karlo: That’s right Sean, it is very important, and especially nowadays, there’s a lot of uncertainties.

Sean: Yeah, I heard that the emergency fund that is advisable turned from three months into one year’s worth, because of the pandemic.

Karlo: A good story could be the ants, you know. Like the ants they are saving during the sunny days, saving their food and resources so that when rainy days come by, they are prepared, they can still eat their food and survive. So it’s the same thing with us. We need to save during the sunny days or during the good times.

Sean: Yeah, for sure, 100 percent. All right, Karlo, what really is it?

Karlo: Before I answer this question, Sean, I just want to commend what you did in your company regarding the salary priority, because when you take care of your employees, they will also take care of your business. So you even sacrificed your own salary, as the CEO of the company. I really admire that decision.

Sean: Well, thank you Karlo.

Karlo: When it comes to personal emergency funds, we need to know our big “why”. Why are we doing it? As Simon Sinek mentioned in his book. We need to start with the ‘why’ also, in saving money and building our emergency funds. If you’re a family man like me, of course, you need to prioritize your family in case of uncertainties. Just like what’s happened to this pandemic, a lot of people lose their jobs and some had a salary cut. And so when you have savings or personal emergency funds, you will always go back to your ‘why’. Is it your family? Is your organization where you are part of? Or maybe you are helping with some volunteer activities as well?

Karlo: So once your ‘why’ is clear, you will be motivated despite the challenges because challenges will really be there. There will be uncalculated scenarios, no matter how much we plan, there are just some things that cannot be calculated. But if we are prepared, somehow we can utilize our resources. Just like what Sean mentioned, we are after stewardship. We are entrusted with the resources that we have right now, and so we can use those resources to bless our family, our community, and whatever your motivation is, which is your big ‘why’. So I believe that will be our motivation, which we should keep in our mind.

Sean: For sure, and you know, a lot of people who have emergency funds, if you’re single, it’s usually because of when you lose your job in the rare case, in the rare event that you lose your job and you didn’t plan it, you know you got fired, you got laid off, you have X number of months for you decided to apply to numerous other places, and you can choose.

Sean: Unlike when you lose it suddenly, and it’s not your choice and you were shocked. Now you’re going to have to bite the next hook, you know, and sometimes that next hook is not the best hook. It sucks. It’s not a job that you want to be in. So that’s actually a very good reason to keep an emergency fund. But with what Karlo said, there are different strokes for different folks. It’s different ‘whys’ for each person, could be your family, could be a career, could be anything.