by Leo Wiles
07 November 2018
Financial security is ALL about more money coming in than going out. I know you’ve already made the leap, but if you were still in-house my advice would be to stockpile around six months of living expenses before handing in your notice. That said, I know many of us (including me) have been pushed from our secure in-house roles. And if that has come with a chunky redundancy package, it’s critical to reserve that as your buffer while you begin to build your client base. Here are my other suggestions to get ahead and save money as a freelancer when your income can be unpredictable.
The silver lining for newbies on the freelance block is that there’s very little outlay beyond a laptop, phone and Internet connection. This doesn’t mean you can feel justified going and buying yourself a new Mac or smartphone; you need to make do with what you have for now. Here’s a post we wrote on what you DON’T need when you start freelancing.
Submerge your credit cards in water and store them in the freezer while you assess your income and expenses. I’m serious! And pull out a notepad and jot down every expense, from random frapuccinos to the cost of utilities, rent or loan repayments. Do this for a month (preferably two) and you’ll have an honest appraisal and understanding of where your money goes.
It’s a lot easier when you work from home to save on lunches, coffees, commuting costs and all those little impulse buys we often make without thinking (cute KikkiK pen, anyone?). Bigger cutbacks might be things like Foxtel – would Netflix do you? Can you cut back on wine or join a discount wine club? Unsubscribe from online shopping newsletters? If you make a necessities mind-set a habit, it’ll really help in the seasonally lean times when publishers slash budgets and clients go AWOL.
Some freelancers will read that and laugh – because it’s hard to do. Payments can be slow to come in and sometimes you’ll be at the mercy of companies that pay on publication (grrrr) or 30 days from the end of the month, which can sometimes mean waiting for 6-8 weeks for payments. So get into the habit of sending invoices promptly, chasing late payments, and securing ‘bread and butter’ clients in between the larger projects to help you get on top of your cash flow.
One of the best ways I avoid freaking out when bills come in is to follow the advice of a financial planner. He told me to project how much my big bills were for a year. Once I understood how much my mortgage, rates utilities and so on would cost per annum, I divided the amount by 52 and set up weekly direct debits. This way I avoid bill shock or scrambling for cash.
It’s critical as a freelancer that you calculate a third of all your income and on payday set it aside in a separate business account, so that when the taxman comes knocking you’re not having kittens and paying a fine. Similarly, educate yourself about which expenses can be off-set against your tax – or ask a good accountant. Things like advertising your business, travelling for work, office furniture, computer hardware and software, gadgets, insurances you might need and even mortgage payments, rent and utilities could all be partially tax-deductable. More possible claim options here! Of course, if you get a generous rebate, it’s a good idea to pop it straight into your buffer account rather than nicking off to Fiji. Kaching!
Once you’re on top of your fixed outgoings and have worked out your ‘salary’ you can begin to understand how much you need to earn to have savings. Although an even better way to do this is to set a savings goal, such as ‘I want to have two weeks off at Christmas’. By knowing what you want, you can plan to get there. And then, as with your other direct debits, pay the set amount required into a separate account that’s hard to access so you’re not tempted to dip into it.
Are you really charging what you’re worth? Has it been five years since you last updated your rate card? It might be time to give your finances and savings a boost by letting your clients know you’re raising your fees on X date, especially if they are long-standing clients who are very happy with your work. Our ebook has essential scripts you can use for how to do this if the idea gives you the cold sweats.
Keeping on top of your finances as a freelancer, and reaching your financial goals, takes commitment and a healthy dose of self-control. As a freelancer, you also need to get into the habit of saving during the feast times so you can ride out the famine.
Listers: over to you. Any finance tips that have helped you save money as a freelancer?
I recently read Barefoot Investor and recommend everyone especially freelancers to read it. It’s got some fantastic tips on how to save, what to do about your super (something many freelancers neglect to do) and setting up a share portfolio etc.
Massive fan of Barefoot too, Rashida – as we discussed on LinkedIn. Even though my super is still suffering 🙂
Cost cutting is essential; I saved so much money on mobile bills and utilities just by shopping around. Using separate accounts such as weekly/monthly expenses helped a lot too.
Same, Tom. I did a story on saving and the expert I spoke to said you should do the utilities ring-around once a year – you really can save yourself thousands all up. Interesting with the separate accounts, didn’t think of that.