As a freelancer, you have to spend a bit more time on financial planning than the average person. Aside from handling your own (complex) taxes to understanding retirement savings, this is a lot of work! I’ve been freelancing full-time for years, and my financial future is something I spend a lot of time thinking about.
This guest post from Luke is all about what you can do today to prepare for tomorrow. The sooner you start your planning, whether you’re a full-time freelancer or blogger, the more options you’ll have. Let’s dive in!
Seventy-eight percent of NFL players go bankrupt two years into retirement. Sixty percent of NBA players go broke within half a decade of leaving their sport, as well. The lesson here is that, even when individuals tap into enormous amounts of money, if they don’t handle it well, they’re going to run into trouble sooner or later.
Now, you may not be in line to become an all-star sports icon, but you may be considering making the leap into freelancing. As is the case with any amount of financial fluctuation, if you don’t plan out how you’re going to handle either your financial success or struggles, you’ll end up suffering sooner or later.
If the unstable and unpredictable financial aspects of freelancing are making you nervous, you’re not alone. Here are several tips and suggestions to help you go into the adventure with confidence that it’s the best financial move you can make.
Start by Setting the Tone
Before you establish rates, send an invoice, or start tracking your income and expenses, it’s important to set the right tone. Freelancing is traditionally seen as a fearfully unstable way to make money — and it certainly has its challenges. You could lose a gig at any moment and the turnover rate and perpetual need to find new work can feel overwhelming.
However, it’s important that you don’t let these realities taint your perspective of the freelance lifestyle. The truth is, the average Jane only stays at a job for 4.6 years at this point, and younger employees tend to clock in at a measly 3.2 years.
The point is you likely aren’t choosing between six-month freelance gigs or a thirty-year career with a pension. The vast majority of employee options these days require a certain amount of moving from one position to the next.
Keep that in mind as you consider the challenges of freelance finances. When you can do so, an interesting thing comes into perspective: a freelance career can actually be more stable than a traditional full-time gig.
Why? Because if you lose a full-time job, your entire income goes with it. However, with freelancing, you tend to spread your eggs out into several different baskets. This makes it really difficult to genuinely lose all of your income at any given moment.
Make no mistake. You certainly will have more financial responsibilities as a freelancer. However, this comes with just as many benefits as it does concerns.
Create a Solid Financial Infrastructure
Once you’re in the right mindset, it’s time to consider how to set yourself up for financial freelance success. This requires patience and long-term focus. However, it’s also important that you start with the best foundation in place. This includes a few key elements:
- Good rates: You want your rates to cover your basic living expenses at the least while still making you attractive as a prospective option to clients.
- A budget: Make sure to create a solid budget that is influenced by a thorough understanding of your wants, needs, required income, predictable expenses, savings, debt, an emergency fund, and so on.
- Other financial documentation: Along with a budget, you may also want to create spreadsheets or use apps to track your income and expenses.
- Banking and invoicing: Set up a separate bank account for business transactions and get a solid invoice generator to help streamline, track, and accept payments.
- Taxes: Finally, research roughly how much you should set aside from each payment to cover your taxes.
A solid foundation is an essential starting point for sustained success.
Set Short and Long-Term Goals
With a positive mindset and solid foundation in place, it’s time to make short- and long-term goals. These goals should be specific, measurable, attainable, relevant, and time-sensitive.
Examples of short-term financial goals could be setting aside money for an emergency fund when you’re between clients or finding a suitable healthcare solution as a self-employed individual.
Long-term goals could consist of reaching a certain pay rate, reducing the number of hours you have to work to cover your costs, or setting up a self-directed IRA for your retirement.
Review and Adjust
Finally, always be willing to review and adjust your current financial setup. From changing how you invoice clients to adjusting rates, updating budgets, or setting new savings goals, there are always ways that you can improve your financial outlook.
Take the time to review your freelance finances every few months. Then make adjustments wherever necessary.
Dominating Your Financial Future
The need for self-care is a common theme among freelancers. What often isn’t brought up, though, is the fact that caring for your finances can also be a great way to tend to your overall health. It can relieve current stress and provide time and resources for future physical health goals.
It doesn’t matter if you’re considering diving into the freelance world or looking for a way to improve your existing freelancing lifestyle. Regardless of your situation, it’s important that you take the time to address the points listed above to secure a strong financial future.
Start with your mindset, then create a stable foundation, set short- and long-term financial goals, and schedule time to review them regularly. If you can do that, you will set yourself up for sustained and prolific success as a self-employed individual.
About the author
Luke Smith is a writer and researcher turned blogger. Since finishing college he is trying his hand at being a freelance writer. He enjoys writing on a variety of topics but professional development topics are his favorite. When he isn’t writing you can find him traveling, hiking, or gaming.
Want to submit a guest post to the blog? I’m always accepting submissions! Check out my contributor guidelines to see if you’re a good fit.