Becoming a freelancer is a fantastic way to take control of your life. No more nightmare managers, no set hours, you can work from home in your jim jams and bunny slippers and eat ice cream at 10am. Goodbye 9-5! But the fun won’t last unless you manage your finances correctly.
It can be liberating to hop from project to project, not knowing what exciting job is around the next corner. But, what if there’s no job around the next corner? Or the next two, three or four corners? Freelance work can be sporadic at the best of times, especially when you’re just getting started. This can be crushing when you’re used to relying on a regular paycheck. Before you know it, your savings have dried up and the unpaid bills are mounting. It’s a bleak reality that not many first-time freelancers want to address. But it’s one of the top reasons freelancers give up within their first year.
Even when you’re an established freelancer, your cash flow will have peaks and troughs throughout the year. There will be times when you’re rolling in dough, and times when you don’t see a drop for a few months. It might sound pedantic, but the only way to weather the storm is to expect this to happen and be prepared. If you’re prepared for a drought in work, you’ll survive it better.
If you’ve just made the switch from full-time employee to freelancer, you’ll need to adjust your mindset pretty quickly. You’ll be used to that safety net known as the monthly paycheck. But these don’t exist in the freelancing world. Before you make the big switch to freelancer, it’s wise to save up some cash to act as a buffer zone in case you don’t land that first project as quickly as you originally thought.
When you’re a freelancer you need to be HR, admin and banker all rolled into one. When you work as a full-time employee things like pension, taxes, and healthcare insurance are taken care of automatically. But you’ll need to organise these things yourself if you’re freelance. Which can leave you with decidedly less in your pay packet than you originally thought, for day-to-day expenses. Work out a rate to charge which will cover all your monthly expenses, and don’t take on projects that are budgeted below this. They won’t be worth your time and you’ll end up running at a loss.
Get on top of your admin and stay organised. You’ll find out sooner or later that not every client is the best in the world at remembering to pay on time. If you do your bit by remembering to invoice on time, they’ll get the heads up they need. The last thing you want is to miss paying a bill because a client didn’t pay you on time.
Budget, budget, budget. It can be tempting to splash the cash once you get paid at the end of a project. But, do this at your peril! You should try to save a lot of what you earn to budget against dry periods when you have no work. The first few years of freelancing can actually be a very frugal existence. Try and save up enough cash to get you through 5 months without work. It sounds like a lot, but this should see you through most situations.
Get regular clients. Find a reliable, regular client who gives you secure, repeat work every month – this will be your rock. This way you can be fairly sure you’ll always have some money coming in every month. The ongoing work might become repetitive or dull, but you can fit other, more exciting clients around it. But even when you find this rare creature, don’t rest on your laurels just yet. Keep in mind that clients can get rid of freelancers at a moment’s notice. Nothing is totally secure in the freelancing world.