Creating an emergency fund for your holiday rental
Protect yourself against unexpected expenses
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- Life Emergency Fund: Secure the financial stability of your rental.
- Calculating and Saving Strategically: Find out how to set up a contingency fund.
- Effective Management: Tips on how to grow and maintain your fund.
- Long Term Security: Ensure the financial stability of your property.
May 2024
Having financial liquidity at all times is an essential rule for holiday rental hosts. Planning ahead is a crucial value in managing your property. Establishing an emergency fund will be vital for ensuring your financial security; it’s a way to safeguard your assets when setbacks arise, such as repairs to the flat or house, unexpected payments, or those periods when bookings are scarce.
Unexpected expenses occur frequently, and without an emergency fund, you could find yourself in a difficult financial situation. Want to know how you can set up an emergency fund to protect your investment and the financial stability of your holiday rental? Then join us in this article.
How to calculate and establish a contingency fund
How much money should I have in my emergency fund? This is a common question among hosts. Our recommendation is to have between three to six months’ worth of maintenance and management expenses in your emergency fund. At first glance, it might seem like a lot of money, but it will be essential to set aside that amount to handle a financial setback.
Start by detailing your monthly expenses and save accordingly. For example, if your annual maintenance costs are €20,000, you’ll need to save at least €5,000 in this fund. This will require you to create a savings plan and set aside a specific amount from your income each month until you build up your financial muscle. Therefore, you’ll need to develop some discipline, be consistent, frugal, calculating, and look for extra income opportunities.
Tips for managing and maintaining an emergency fund
Automating your savings is a key strategy for growing your emergency fund. It’s as simple as setting up a regular bank transfer from one account to another. Just instruct your bank to transfer a set amount of money every month. You must be consistent and set regular intervals.
You can also allocate special or extra money to this purpose. For instance, if you were planning to go on holiday to an exotic destination, this year you could change your plans and go somewhere more modest. This way, you can allocate that money to a contingency fund that ensures your financial stability. Additionally, you could do extra work (depending on your skills and knowledge) to boost this fund. And, of course, there’s also the option of selling property or items you no longer need. Do you have a motorbike you no longer use? Perhaps an old vinyl collection? Nowadays, you can sell almost anything in the online second-hand market. Think about what you don’t need and sell it.
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Keep that money in a separate bank account
It might seem obvious, but don’t mix your daily business money with your contingency fund. And don’t mix your business finances with your personal finances either! The more separate your emergency fund and daily accounts are, the better. A poor practice of some owners is to mix all their capital in one bank account, which means that in a time of need, they end up depleting their meagre savings.
Moreover, if you separate the accounts and place your fund in a savings account, it can earn you some interest at the end of the year. Just make sure you choose a bank with a high interest rate to make more money from your savings.
Make a plan to reduce fixed and variable costs
Maintaining and preparing your holiday rental incurs a series of fixed and variable costs. If you want to save money, you’ll need to sit down with a calculator and review all your bills and contracted services. Check gas, phone, electricity, firewood, and other fixed costs. Do these seem high? You can always switch providers or look for cheaper options. Many of these suppliers compete with each other, offering discounts and price reductions to potential customers. Try to reduce these bills as much as possible, and you’ll gain a savings margin.
Another way to cut costs is by opting for low-consumption and energy-efficient systems. Some owners invest in solar panels, LED lighting, or smart thermostats. Explore your options and find ways to save money passively each month with a good initial investment in your installations.
Seek state grants for holiday rentals
A recurring issue in the holiday rental market is that many owners are unaware that there are state and European grants available that can truly boost their hosting activities. There are public grants for digitalisation, rural development, energy efficiency, tourism promotion, renovations, etc. Receiving some of these grants — which must be properly justified at the end of the fiscal year — can widen your savings margin.
Record all economic activity
If you want to save and maintain your emergency fund, you’ll need to keep strict control of all the money coming in and going out of your business. You can keep the accounts in various ways; we recommend using a spreadsheet programme or specialised holiday rental software.
As you observe how your financial flows behave, you’ll be able to reassess your short-term and long-term goals. For example, if one month you have higher-than-expected income, you can allocate some of that money to your emergency fund.
Long-term security
Creating an emergency fund for our holiday rental shouldn’t take more than two years. But the challenge is not just in gathering the necessary funds, but also in maintaining them. Long-term security comes from economic stability. Some owners use professional accounting services to manage their accounts. It’s a worthwhile option, especially if it results in sound, rigorous, and sustainable finances.
Another option to consider is taking out private insurance. If you have enough liquidity, you can cover your back with insurance for emergencies; some even cover sudden drops in income. Talk and negotiate with your insurance company to compare options and feel supported in the long run.
We’ve now given you a series of tips to create your emergency fund and cover unexpected expenses for your holiday rental. Now it’s up to you to implement the necessary measures in your business to make it profitable at all times.