The banged-up solopreneur/freelancer—time to access the emergency fund.
The 'don't blame me' blurb: I am not a financial advisor, portfolio manager, or accountant. This is not tax or investment advice; it's information to get you going. Please consult your trusty professional and do your due diligence. Carry-on!
Updated: February, 2026
TL;DR
Have at least 6 months of living costs saved, perhaps more if you’re in a volatile industry.
Having an emergency fund will reduce stress on you, your business, and your relationships.
Keep the money in a High-Yield Savings Account (HYSA), or
Use Vanguard’s VBIL, a U.S. Treasuries-based ETF that behaves like cash. It’s state-tax exempt!
Avoid touching your retirement accounts like the plague. It hurts Future You.
Why This Matters More for Freelancers
You don't have a salary. You don't have employer-funded severance. If a client ghosts, the economy tanks, or you break your arm and can't work — nobody is cutting you a check.
That's not fear-mongering. That's Tuesday.
An emergency fund is the thing that lets you sleep at night when work dries up for a month or two. Without one, you're one bad quarter away from raiding your retirement accounts, and that is a catastrophically expensive mistake (more on that in a second).
How much cash should you have stashed away?
6 months or more of essential living expenses. Not income. Expenses. There's a difference.
If your monthly essentials (rent, food, insurance, utilities, minimum debt payments) add up to $4,000, you're looking at $24,000+. Where you land in that range depends on how volatile your income is and how well you sleep with uncertainty.
As your life gets more expensive — mortgage, kids, that inexplicable need for a second car — your emergency fund needs to grow with it.
Hopefully, you also have a growing Solo 401(k). It’s a massive wealth creator that requires almost no attention from you. Click here for the Solo 401(k) guide, or open a Roth IRA if your income is mostly W-2. Investing will make you rich, slowly.
Your emergency fund comes down to this:
Don't Touch Your Retirement Accounts
I cannot stress this enough. Pulling $20,000 from your Solo 401(k) today doesn't cost you $20,000. At 7% growth over 25 years, that's $108,000 you just lit on fire. Plus potential early withdrawal penalties. Plus taxes on the distribution.
Your retirement accounts are for retirement. Your emergency fund is for emergencies. These are two different things. Don't blend them.
Where to stash the cash?
Eh, no, Grandpa. Not there.
Here are the three main options:
High-Yield Savings Accounts (HYSA).
VBIL — U.S. Treasuries-based ETF to avoid state and local tax.
Stock market Three-Fund Portfolio (60% stocks, 40% bonds) — NOT for most people.
Option 1 — The High-Yield Savings Account (HYSA) Option
Chances are, your regular bank’s savings account offers a lame interest rate (we’re talking 0.1 - 0.5%), so we need to use a specialty HYSA bank. Honestly, the term ‘savings account’ is a joke at most main street banks.
Is a HYSA at a bank safe?
Banks are insured by the FDIC. If your account balance is below $250,000, Uncle Sam will guarantee your money if the bank goes bust.
Look for specialty banks offering a High Yields Savings account like:
I put part of my emergency fund in Maxmyinterst.com.
Max, or Maxmyinterest.com, is a company I first read about in Jason Zweig’s investment column in the Wall Street Journal, so thank you, Jason!
Max is an online platform that allows users to instantly open bank accounts with banks nationwide, offering the highest savings rates. There are no forms or bank websites to log in to; Max handles it all.
There is an $80/year fee, so if your emergency account is small, it may not be worth using Max.
Points to consider:
If the Federal Reserve base rate is low, the interest rate on the HYSA will be very low.
The interest payments generated by the account are taxable at your personal interest rate and must be declared on your tax return yearly.
Keep each account under $250,000 to be covered by the FDIC insurance. I know, not a problem most of us have, but worth mentioning.
Option 2 — VBIL U.S. Treasuries ETF
Here's where it gets interesting for freelancers in states with income tax.
If you hold a U.S. Treasury-based ETF or money market fund in a taxable brokerage account, the dividends are exempt from state and local income tax. That's because Treasury interest is only taxed at the federal level.
What’s a Treasury? It’s us lending money to the U.S. Government; in return, they promise to pay the investor interest on the loan. They are issued by the U.S. Treasury Department.
I live in D.C. with an 8.5% state tax rate. On $50,000 earning 4%, that saves me $170/year. Over 30 years, that's $5,100 I didn't hand to the D.C. government. If you live in a zero-income-tax state like Florida or Texas, this advantage disappears — just use a HYSA.
How to buy the ETF: You buy the ETF in a regular taxable brokerage account with a broker like Schwab, Vanguard, Fidelity, or E*Trade.
How it works: Vanguard, the ETF creator, buys U.S. Treasury bills and places them in the ETF. Dividends get paid into your brokerage account monthly. Set it to reinvest dividends automatically and let the snowball roll.
Fees: Vanguard charges 0.06%. That’s $30 a year on an account with $50k in it. Schwab and most brokerages charge nada to have an account with them.
Need the cash? Sell some of the ETF shares, wait about three days for settlement, then transfer to your checking account. Not instant, but not slow either.
VBIL — Vanguard's 0–3 Month Treasury Bill ETF (available at any brokerage — Schwab, Fidelity, whoever; no minimum)
Pro tip: Open a separate brokerage sub-account just for your Treasury holdings. At tax time, you (or your accountant) need to identify the income as Treasury-based to claim the state tax exemption. Keeping it in its own account makes that dead simple.
Things to know:
Treasuries aren't FDIC-insured, but they're backed by the U.S. government. If the U.S. government can't pay its debts, you have bigger problems than your emergency fund.
Your brokerage account is SIPC-protected up to $500,000 (including $250,000 in cash).
Option 3: Three-Fund Portfolio (Advanced — Not for Most People)
Let's talk about the riskiest option. This is not for everyone, and I want to be clear about that upfront.
The idea: if your emergency fund is going to sit there for years (hopefully untouched), why not invest it all or some of it in a Three-Fund Portfolio and earn a higher long-term return?
The math is tempting. A $50,000 deposit for 30 years:
HYSA at ~3% average → grows to ~$121,000
Three-Fund Portfolio (60/40) at ~7% → grows to ~$380,000
That's a $259,000 difference. Not nothing.
The risk is real. If the market crashes right when you need the money, you're selling at a loss. That's the nightmare scenario with this approach.
Some nuance though:
The 40% bond allocation provides stability and isn't very volatile.
If you do sell at a loss, you get a tax deduction — up to $3,000/year, with the rest carried forward.
Capital gains on profits are taxed at 15% (long-term), not your higher ordinary income rate.
This only makes sense if you have other backup liquidity and genuinely believe you probably won't need these funds.
Bottom line: The Three-Fund Portfolio as an emergency fund is a power-user move. It's not reckless, but it's not conservative either. If you're new to investing, stick with Options 1 and 2. If you're experienced and have other liquid assets, now you know this exists.
Read about the Three-Fund Portfolio here — it's the backbone of my Solo 401(k) and Roth IRA strategy.
Me: Where is my emergency fund?
Transparency matters, so here's my actual setup:
80% in VBIL — The Vanguard Treasury ETF, held in a separate sub-account within my Schwab brokerage. This avoids D.C.'s 8.5% state tax on the interest. Easy to manage, easy to explain to my accountant.
20% in Maxmyinterest.com — For the HYSA yield and instant liquidity.
I also have a decent-sized taxable brokerage account with a Three-Fund Portfolio that I could sell in a real emergency, so I don't feel the need to allocate more to the Three-Fund Portfolio strategy for this purpose.
Here's the lowdown on the essential costs you may want to cover:
Housing Costs: Your rent or mortgage, it’s a no-brainer.
Utilities: You have to keep the lights on and the water running.
Food: Think basic groceries that can stretch for meals. Ramen can be your best friend. DoorDash and Uber Eats are not.
Healthcare: If you've got meds or ongoing medical needs, they can't be ignored. Health insurance is super important, especially if you've got a family. Don’t stop exercising either, long-term this is so important.
Car Expenses: If you have a car and need it for job interviews or essential travel.
Minimum Debt Payments: Make at least the minimum payments to avoid penalties and to improve your credit score.
Basic Personal Expenses: We're talking toiletries, household items, and maybe a small budget for clothing if necessary.
Here’s what you can probably cut back on or drop:
Cable TV subscriptions, expensive gym memberships (work out other ways for a while), streaming services.
Eating out, takeaways, and expensive snacks.
Luxury items, like high-end clothes and gadgets.
Non-essential travel or entertainment
The Bottom Line
Your emergency fund is Step One. Before the Solo 401(k). Before the Roth IRA. Before everything. You build the safety net first, then you build wealth.
Here's the short version:
Save 6 months plus of expenses. Use a HYSA, VBIL, or a combination of both. If you're in a high-tax state, lean toward Treasuries. Increase the fund as your expenses grow. Never raid your retirement accounts.
Financial stress is the worst kind of stress. It wrecks your health, your relationships, and your ability to do good work; even your dog will be upset with you. Get your emergency fund squared away so that when things go sideways — and they will, eventually — you handle it from a position of calm, not panic.
Buying fine wine and storing it in your cellar is not an emergency fund strategy. (I shouldn't have to say that, but here we are.)
Share this with your freelance friends, talk about money and investing, it’s important.
Comment below on what your emergency savings hacks are.
If you open a brokerage Schwab account, pay us both a little moolah. I put it in my Solo 401(k)!
That 1% annual advisor fee doesn't sound like much. But on a $630,000 portfolio over 17 years, it quietly drains nearly $480,000 from your retirement — while the same money in a low-cost index fund does none of that. Here's what the financial industry would prefer you never actually calculate.