Finances for Full-Time Freelancers

Running my own full-time freelance business taught me a lot of things—especially how to save money. Granted, I knew how to conserve finances before, but there’s nothing like not knowing when your next assignment is coming in the door or whether your clients are going to pay on time to kick that saving habit into much higher gear.

Several years of working as a reporter also helped prepare me for running a lean full-time freelance operation. Because as some of you may know, reporting jobs generally don’t pay well. So in addition to learning how to write and report during my newspaper years, I also perfected the art of living on a shoestring budget without feeling like a pauper.

If you have the benefit of planning ahead before going full time with your freelance career, I strongly suggest several financial moves before you take the plunge:

1) Build a cushion. You need a financial safety net for those months when assignments are coming in slower or your clients are taking longer to pay. Before striking out on my own, I saved about four months’ worth of living expenses as a cushion. Over time, I managed to build that cushion up to about 8 months’ worth of living expenses. If my cushion dipped below a certain dollar amount, I adjusted accordingly by cutting back on spending, taking on more work, and increasing my marketing efforts. Now that I’m freelancing part time and working full time in an office job, I am still maintaining this strategy and building that cushion.

2) Pay off your debt. Before I went full time with my freelance business, I paid off as much debt as I could manage—while still saving money. I wasn’t successful in eliminating all of that debt before going out on my own, but I did manage to pay off some it. For a couple of higher interest cards, I obtained a loan through my credit union at a lower interest rate to pay those high-interest balances off. I also negotiated lower rates with a couple of credit card companies. Granted, I did these things before current market conditions hit, but I would still recommend the same strategy.

3) Eliminate or lower expenses. When you’re running your own business, it’s important to examine all your expenses and find ways to eliminate or lower them—not only in a recession, but at any time. Well before I went full time with my freelance business, I started cutting back on my spending. No more visits to Starbucks or lunches out. If there was a generic or store brand at the grocery store, that’s what I bought. I eliminated unnecessary household purchases (did I really need carpet powder when baking soda would accomplish the same thing?). Instead of cleaning with paper towels, I bought dish rags and started using those instead. It doesn’t sound like much, but little things like these add up. And the money I saved from those cost-cutting measures, I banked the amount in my savings. I also carried around a notebook and started recording all of my daily expenses. And I wouldn’t allow myself to spend more than a certain amount per week. If I went over the amount I had budgeted, I had to subtract that amount from the following week’s allotment. I looked at all of my bills and looked for ways to trim services or eliminate them entirely. Even though I was still earning a regular paycheck, I started living like I was already freelancing months before I actually took the leap.

Stay tuned—on Thursday, I’ll pass along some more financial advice for full-time freelancers.

Jenny

Photo credit: Sami Keinänen (Flickr)