Financial Fitness for Full-Time Freelancers

Some people have the luxury getting their finances in order before venturing into full-time freelancing. But in this economic climate, there are many others who are in a sink-or-swim situation due to sudden job loss and other circumstances.

The other day, I talked about how to prepare financially for going full time with your freelance business. But what if you don’t have time to get your finances in order before diving in to full-time freelancing? What if you don’t have time to build a months’ long cushion to get you through the lean times? Or even if you’ve been in the business for a while, what do you do if you suddenly find your work slowing down to a trickle? What can you do to stay afloat?

Here are a few ideas:

Cut expenditures. No matter what the economic conditions, it’s always a smart to look for ways to trim unnecessary expenses. Take a hard look at your monthly income and expenditures. Add up your expenditures and income for the past three to six months. Based on that information, figure out what an average month looks like—what are you typically paying out and what are you taking in? Once you have your average month figured out, go back through your expenditures and see where you could have saved money. For an unvarnished picture, add up all the eat-out expenditures from your checkbook ledger. Evaluate your bills and services. Are you paying for full-service cable when basic service would do the trick? Is your phone usage matching up to the amount of money you’re paying out every month, or would it make more sense to switch plans? Ask credit card companies to lower rates or fees, refinance your auto loan, switch car insurance companies if you find a better rate. Evaluate every service you’re paying for—I guarantee that you will find someplace to cut if you dig deep enough into your finances.

Use the buy-it-later rule. I went through some pretty lean times as a full-time freelancer, and one trick that I routinely employed was what I call the buy-it-later rule. It works like this: If you think you want to buy something other than groceries or basic bread-and-butter items, put the item back on the shelf or navigate away from the grocery cart on the Web page and walk away for 24 to 48 hours. If you still want to buy the item after the waiting period, then by all means, consider it. I find that this tactic is very effective. And many times, I not only forget about the waiting period the next day, I often forget about the thing that I so desperately wanted a few hours earlier. The key is to avoid impulse purchases of all kinds—even with routine, basic grocery items.

Apply the Starbucks rule. What could you do with $1,277.50? That’s how much you’d save in a year if you kicked your $3.50 a day Starbucks habit. Look at other things that you spend money on without thinking. What about that Diet Coke that you pick up on the way home from work every day? Pick two or three things that you regularly spend money on but don’t think twice about, and add up how much you’re actually spending in a year on those items. I guarantee you’ll be surprised how much money you’re burning through on purchases that you normally don’t give a second thought to.

Downsize your office. Most full-time freelancers I know work out of their homes. So aside from basic expenses, you really shouldn’t have high operating costs. But if you’re like me, you occasionally might get the urge to splurge at the office supply store. Based on personal experience and a few expensive lessons, I know that it’s possible to spend a lot of money on items that you convince yourself that you “need.” I was always one of those kids who couldn’t wait to buy school supplies for the year. So as an adult, that same love for pens and paper carried through to office supplies. And for me, shopping for office supplies online is especially dangerous. So before you put reams of paper, fancy pens, and expensive office chairs in your virtual shopping cart, ask yourself if you really need the items. You also might want to look at eliminating certain office activities to save money. With the exception of an occasional document, I no longer print anything I write. Printer cartridges are expensive, and so is paper. Save a few trees—stop printing documents.

Execute plan B. When you’re a full-time freelancer, it’s always a good idea to have the plan that you’re actually living, as well as several plans in place (if only in your mind) in case Plan A doesn’t pan out or your finances need a bailout. In this economy, it’s a do-what-you-need-to-do world. Don’t think twice about taking a second job if you need to, or about working full time and going part time with your freelance career. Do what you need to do to survive the downturn, and keep an open mind. There’s no right or wrong way to approach a freelance career when it comes to doing other things to supplement your income. I know a fair number of freelancers who do other things in addition to freelancing—teaching, speaking, consulting, and nursing. The possibilities are endless. So don’t get locked into thinking that there’s only one way to approach your freelance business. The more diversified you are in your business model, the better.

Hire a good CPA. I probably don’t have to tell you how important it is to find a good CPA. Over the long haul, a CPA can save you a lot of money by helping you figure out all tax deductions available to you. And they also can provide basic advice on how to save on taxes throughout the year. I know some freelancers who insist on doing their own taxes. But the way I see it, CPAs are required to stay up to speed on tax law. I, on the other hand, prefer to focus on other things that I enjoy doing more—like writing and editing. So I leave the heavy lifting to someone else when it comes to taxes.

So what about you? Do you have any tips or ideas on how other freelancers or independent contractors can save money?

Photo credit: Tracy O (Flickr)