As a freelancer, you don't have the stable income that an employee can rely on. So you need financial buffers for unforeseen circumstances. On top of that, you can't rely on unemployment benefits when your income drops. With a buffer, you are also less dependent on the whims of your clients. How big should your buffer be?
Nibud advises a buffer to be over €20.000 for a family with an average income. The Nibud makes no distinction between employees and freelancers. Yet it is important for you as a freelancer to have extra money in the pocket. This allows you to bridge periods with fewer assignments and to temporarily accommodate the loss of major clients. That will help you to avoid an immediate financial problem when your income drops or disappears.
Keep an extra buffer of at least three months income
As a freelancer, you have to divide the money between different jars. Part of the money you reserve for the tax authorities and another part for your retirement. Then you also have a premium to pay for disability insurance (AOV) and other necessary insurances such as liability insurance and inventory and property insurance. It is advisable to keep additional money that you can live on for at least three months. After the complete loss of income, you can use this buffer to make ends meet.
A larger buffer is needed if you are dependent on seasons
For example, gardeners or freelancers in the event industry are highly dependent on the season. In the off-season, the income will drop dramatically. So during the active months, an extra buffer must be built up to bridge the quiet period. With seasonal work, an extra buffer is certainly not an unnecessary luxury.
With a buffer, you can also pay yourself vacation money
By reserving 8% of your income each month as vacation pay, you can pay yourself an extra amount in May for expenses during the vacations. By reserving this money, you also have extra amount of money in case of setbacks.
You can’t replace disability insurance (AOV) with a buffer
A buffer can be a solution for a temporary dip in the amount of income. It is not the solution for all possible problems. With a buffer, you can bridge a period of illness, but it is certainly no replacement for disability insurance (AOV). Temporarily not being able to work because of a broken arm can be bridged with a buffer, but you can't do that with a burn-out that lasts a year. Or even worse, you can never work again due to a chronic illness.
Major misconception - I do not need an AOV. I will save some money or will become a part of a mutual fund
If a freelancer becomes disabled, the income falls to zero overnight. With disability insurance (AOV) this risk can be well ensured. Joining a mutual fund ensures that you also buy a form of security. In a mutual fund, you and other participants bring together money to cover the financial damage of temporary disability of one or more of the participants. Yet this is no replacement for disability insurance (AOV). From a mutual fund, you are only entitled to a maximum payment for two years. After that, the income will be lost.
Do you want to know which disability insurance (AOV) suits you best? The advisors of ZZP Nederland would like to help you find out what insurers offer and which disability insurance is best for you. They will pay attention to the conditions and limitations and of course the monthly premium.
Collaboration with Flow Your Money
Flow Your Money currently has a partnership with ZZP Nederland. Via the Flow app, you can easily arrange the building up of the AOV buffer automatically. To the Flow app.