[00:00:00] Linzy: Hello and welcome back to another Feelings and Finances episode of the Money Skills for Therapists podcast. These are the episodes where I answer your questions, the therapists and health practitioners and coaches who listen to the money skills for therapists podcast. Today we have a question from Fran. Here is Fran’s question.

[00:00:20] Fran: Hi, Linzy. I have a quick question for you. I use YNAB for both my personal and business expenses, and my personal expenses. I have enough money saved for, you know, whatever, six to twelve months, if I was to be out of work. So the question I have is, I have no idea how much of a buffer I need in my business account.

[00:00:49] Is there a particular calculation for that? All my expenses except for my salary, I’m not quite sure how to come to a reasonable number there. Thanks so much.

[00:01:02] Linzy: Well, Fran, it is lovely to hear your voice again. Fran is a graduate of Money Skills for Therapists. It’s been a few years now. So Fran, a couple of things. First of all, I’m very excited to hear that you are still using YNAB in your personal finances and your business finances, and I’m very excited for you that you have that 6 to 12 month buffer in your personal finances.

[00:01:22] So, that is great. Now, this piece about having a buffer in the business, how much of a buffer to have in the business. So the general guideline for having a buffer in your business is about two to three months of operating expenses. So as you say, that is the money that it takes to run the business without your salary and taxes. 

[00:01:41] It’s just those keeping the lights on expenses. So your clinic management software. Especially if you have rent, you know, rent is something that doesn’t go away if we can’t work. So having two to three months of rent set aside… All of those obligations that if for some reason you can’t work, let’s say you break your foot… Well, you could still work if you broke your foot.

[00:02:00] That’s one of the nice things about being a therapist. Let’s say you end up in the hospital for a little while and you can’t work. The things that you’ll have to pay anyways that, you know, you can’t take a break on, you can’t tell your landlord, “Oh, sorry, I’m not working this month, so I can’t pay rent.”

[00:02:13] You’re going to want to have a couple months of rent in that account. Two months is a good place to start. I generally aim for two months. Folks who are more conservative, in the sense of being more risk averse, want more security, might do three months. I would say no more than that. So if you look at your average operating expenses for, you’re going to have a great picture there, Fran, for, you know, let’s say the last year or six months.

[00:02:36] And you see that on average, it costs you 500 a month to run your business. Then your goal would be to build up a thousand to 1,500 in the business to cover off the business’s obligations if you can’t work. What I’m hearing is that you already have money saved up at home for your personal salary. So.

[00:02:56] It’s the therapist’s choice whether or not you’d also want to save some money in the business as a salary backup in case you can’t work for a little bit. You know, you could have that money in the business as well, but it would be redundant to what you’ve already got at home.

[00:03:08] Basically, you just need some money, an emergency fund somewhere. And it sounds like you really have that quite thoroughly covered at home, so it probably wouldn’t be to your advantage to also have some money for your paycheck in the business, but what I would encourage, Fran, if you don’t have it already, is to have that salary system going in the business.

[00:03:26] So there’s a buffer for your salary, which means that you get paid that regular amount every month. And this is in module five of Money Skills for Therapists. So if you’re not working this strategy yet, I would encourage you to add this in because this is a type of buffer in the business, which is making sure that you have extra money in your salary fund,

[00:03:41] so that if you have a month where you work a little bit less, you can still get paid the same amount for the business. Or so you can take vacation and still get paid the same amount from the business. That’s that regular paycheck system, which is another kind of buffer.

[00:03:53] It’s a salary buffer that allows you to have that regularity no matter what your month looks like. But in terms of more of that emergency fund, the I’m not working and I need to have money saved up, then that’s two to three months in the business. And that’s it. That’s a very straightforward question. I hope that that helps Fran.

[00:04:10] It’s lovely to hear from you again. If you have a question for me that you’d like answered on one of these episodes of Feelings and Finances, super easy, you just click on the link in the show notes. It’ll take you to the podcast page, and you’ll see a little box saying, “Do you have a question for Linzy?,” or something like that, and you can just push record, and leave your question for me, and in a case like this, it might be a very short, clear answer, that will hopefully set you on your way to continue getting your finances working for you in your private practice.

[00:04:39] Thank you so much for joining me on the podcast today.