You are your own boss, which is often emphasised when the subject is freelancing, and many the employed people envy freelancers because they can get as much work as possible to earn money and take the day off without seeking permission from anyone, so being a freelancer brings in a lot of benefits. Well, the proof is in the pudding.
The actual fact is that being a freelancer is tougher than being an employee. Amid the cutthroat competition, you never know whether you will get the project from a client. Sometimes work sweeps over them, while other times, they are just at a loose end. Their life is not stable like employees people, and hence it is no wonder that some of you take on work more than you can deliver on time.
Freelancing is not as easy as you think, especially because of fluctuating finances. As an employed person, you will get a fixed remuneration every month that can help prepare a budget that works for you to meet all of your expenses, but freelancers do not get a fixed remuneration. This month the cash will abundantly keep coming in, and the other month they will sit completely with no work. This means your money can be tighter and tighter.
Financial management is what you cannot escape if you are a freelancer. You must learn to make the most of money, so you do not have to live hand to mouth when you do not have a project. Though budgeting is vital for everyone, it is necessary for freelancers, and it is not done the same way employed people do. Budgeting techniques will be quite different for freelancers.
Money lessons that every freelancer should learn
Here are the money lessons that you must learn as a freelancer:
Saving is not optional, but the necessity
The stress of living on unreliable income lets up when you have some backup in your savings account. Remember that your regular expenses, like utility bills and grocery expenses, can transform into an emergency when you do not have sufficient income. You may feel that you have got a lot of money this month, so this scenario will continue even later, but the fact is that you may now have work for next month. Therefore, it is recommended to set aside a certain portion of your income every month regardless of what you earn.
For instance, you can pick a certain percentage of your income to be stowed away for an emergency cushion, which can be 10% or 20% etc. Try to live off the previous month’s income, so when you do not get work next month, you can use this month’s income for your living cost. Remember that the size of your savings hinges on how rapidly your income fluctuates. It is generally suggested that you build up six-month of living expenses. However, some freelancers are able to manage with four months of income in their emergency cushion. The fact is that some may need more than that. The more your income fluctuates, the higher savings you need.
Pay yourself first
You must have been told many times to pay yourself first, but you misunderstand this word. It does not mean paying toward your exegeses first. It rather means stashing away money for a rainy day. Whether you have set the 10% or 20% limit, you should first transfer this much amount of money to your savings account and then rely on your left income for your spending. It is easier said than done. If you are on low wages, you will likely find it hard to save money, but try to do it even if it is just 2% or 5%.
Try to stick to your plan. As a freelancer, you would get wages weekly or bi-weekly, so try to prepare a weekly or bi-weekly budget. This ensures more organised spending without dipping into your emergency cushion for regular expenses. Note that paying yourself does not mean compromising other essential expenses. Of course, you cannot do that by avoiding other obligations like loans without guarantor direct lender. This is just a technique to stay organised. You will have to take into account the multiple factors if you are a freelancer.
Handle accounts separately
One of the biggest mistakes that freelancers do is not separating their personal and business finances. Your business account must be separate from your personal account, and each of them should be dedicated to its purposes. The former cannot be used for meeting personal expenses, and the latter cannot be used for business expenses.
After paying yourself, you will have to see how many portions should go toward your business expenses and how much should go toward personal expenses. Look at your personal budget and business budget. Try to look at the statement for the previous three to six months to get an idea. The next step is t identify if you are left with sufficient money to be able to cover your business expenses.
Depending on your freelance work, your business expenses may vary. For instance, if you are working as a freelance writer, you do not need a lot of money to cover the expenses of your business. As far as it is about energy bills, you can put them under household expenses, of course, if you are working at home. However, if you have a separate workplace, you must have enough money in your cash reservoir so you can cover all these costs without dipping into your personal expense budget.
A better way is to set a fixed paycheque for you. Look at how much money you are able to earn every month, and then find the average. As you are living off your previous month’s expenses, you do not need to consume all of them. Just stick to the paycheque you decide. The rest income can be transferred to another month when you earn low wages. It will account for the paycheque amount.
Try to make more money
It will certainly be challenging to stay afloat when you are a freelancer, but you should try to earn more money if you are on low wages. It is suggested that you promote yourself more and more to draw the attention of clients. Make an engaging portfolio, so they pick you from the crowd. Create your profile on different portfolios and note that each freelance platform works differently. Try to understand how you can get more clients and projects from each platform.
However, again this is crucial to note that you do not take on more projects than you can handle. It will have an impact on your goodwill. Missing deadlines will put your clients off.
The final word
If you are a freelancer, it will certainly be difficult to get by because of a fluctuation in your income. You will have to make a budget that works for you, and it can be a weekly or bi-weekly budget. Understanding the savings is a must. You must stash away a certain portion of your income for a while. Pay yourself first and handle personal and business accounts separately.