How to Plan Your Finances As a Freelancer

A freelancer doesn’t have a regular income. Even retainers don’t seem like regular income since you never know when clients run out of budgets or stop projects.

Living paycheck to paycheck is exactly the thing you wanted to get out of. However, due the nature of freelancing, it might just be what you’d subscribe to. Leo Babauta of Zen Habits shows how to stop living paycheck to paycheck, and you should read that blog post first.

We’ll wait.

While everyone should plan finances, save or invest money, freelancers have the greatest need for it.

Here’s how to plan your finances as a freelancer:

Get out of debt and don’t get into again

It’s a pain to get out of debt. It takes conviction, commitment, and complete dedication. It also takes sacrifices. It’ll force you to take a minimalistic route.

First, use your credit card only when you know can pay off that loan with cash. Second, get extra gigs (or even a full-time/part-time job) just to close your debt accounts faster.

Being in debt sucks. Get out and never get into bad debt again.

Keep a stash of cash, always

You’ll have emergencies. You’ll run out of projects, and hence payments. However, you’ll have your commitments such as unpaid bills, regular mortgages, investments, savings, and actual emergencies.

That’s why it makes sense to stash at least 6 months worth of your average monthly earnings in a highly liquid savings account or a term-deposit.

Increase your rates, gradually

One of the biggest advantages you have over salaried employees is that you are in control of how much you make. While you have the disadvantage of unreliable income, you do have the advantage of increasing rates or work as hard as you’d like.

The folks at Freshbooks wrote on how to increase your prices without losing your clients. And they do have good points to make:

• Emphasize on value you provide, and stick by it. • Expand the scope of your sale. • Don’t be apologetic about increasing rates reasonably. • Increase your rates and test the market.

Automate your savings and Investments

Your finances will never be in order if you don’t have a system in place. You should ideally be taking out about $100 per paycheck and reroute it into a savings account or any other investment you planned for shoft-term, mid-term, or long-term.

If you rely on yourself for writing out checks or doing online transfers, it’s not going to happen. Also, it isn’t a reliable system this way.

Automate your investments and savings by giving mandates to your bank to make auto-debits off your savings bank. You’ll be happy you did.

Stay insured

Since your emergency stash of cash has to stay that way, you have your bills to pay, and you should also be saving for retirement and anything else in between, you have no way to spare cash for any unforeseen consequences. You can’t afford to spend on a new laptop if it gets stolen (or you lose it), for instance.

Insure everything that’s an asset, and that includes your self.

How do you plan your finances? What are some of those tips you can share?

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Originally published at peerhustle.com on August 10, 2015.