Financial lessons I learned as a freelancer

by - April 26, 2017

I've been working as a freelancer now for the last 4 years. I really enjoy being by my own boss and when I work and for whom I work for.

I have been really blessed to be able to sustain many parts of my lifestyle while doing what I want. I don't mind working around the clock especially because I get to choose my work.

But this has come with some setbacks. I've had difficult months financially.

Despite the fact that I’ve always been pretty good with my money, there were still a few things I had to learn along the way.

Twice I had to dip into the emergency fund because I wasn't paid on time to pay my bills. I have to daily live with quite a high level of uncertainty around my income, even when I have retainer clients.

And I had to learn that with my varied income from month to month I have to keep my finances in order, otherwise I'm toast. That is why I set up  system that has kept me flowing.

Looking back, I made a few mistakes when I jumped into the freelance life. Here are a few financial lessons I learned:

Save more into your emergency fund. I saved 30% into my emergency fund but in hindsight I realise that I should have saved 60% of my salary. In my first year as a freelancer, I depleted my emergency fund. It was hectic. I had to start from scratch when money started coming in. And that meant I had to make serious adjustments to my lifestyle.

Make sure you have a budget and stick with it. I've always been good with budgets but I've also struggled with spending the surplus money that I had. This has been really tricky because I didn't know how much I'll make each month. So, I had to have a more detailed budget. I always assume that my freelance income could dry up at any moment, so I only spend what I have to.

Pay yourself first. When I started, I didn't. I just thought I will keep dipping into the same account and this was a mistake because I couldn't separate expenses. What kept me going was that I had a bit of cash. But I had to change that. So, every month on the same date, I make sure that a portion of my income is automatically transferred into my personal checking account. It’s like getting a paycheck from an actual employer, but that employer is me. Yeah the salary is not a lot, it was meant to take care of the most important bills like rent, utilities and food.

Make sure you save for retirement and taxes. Fortunately, I never missed this one. Remember, when you work for yourself, you don’t have an employer to help you save for retirement or put away money for taxes. So always consider these expenses and if possible make them part of your monthly salary. You won’t be able to work forever so, thanks to the power of compound interest, the sooner you start saving for retirement, the better.

Spend money to grow. When I started I did everything on my own because I wanted to save money. As word got out about my work, I started to scale up and I learned that I had to spend money to grow. I had to pay people for certain products or features that streamlined my workflow. I realized that it was an investment to spend that money instead of spending hours trying to do something on my own. I learned how valuable my time is and therefore I shouldn't try to do everything myself.

Spread your money. Don’t put all your extra money or earnings back into your business – split it up. If you have to, speak to a trusted financial adviser about your financial needs – business, savings, retirement, investment...  and make sure to spread your money as it is most needed and best used.

One of the biggest benefits of being a financially literate freelancer is that it can keep you out of trouble. You’ll become adept at avoiding bad business deals before you sign on the bottom line.

Managing your money as a freelancer or as a business owner can be tricky at times, To survive and even thrive you have to take charge of your money and you need a plan more than anyone else.
The most important thing to remember is stay on top of things and you’ll be just fine.

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