This guide outlines how those with freelance careers can manage their money more effectively.
There are so many advantages to working as a freelancer. It’s a great way to earn money flexibly doing something that you enjoy. Freelancing allows you to use your skills (and develop more) to help other people to grow their businesses while taking the time to do other things. Freelancing is incredibly popular, and after tasting the freedom that it offers, few people want to go back to working as an employee.
But one area of freelance careers that can be difficult is cash flow. If you are used to being paid regularly for work done, but also receiving holiday and sick pay and other benefits of employment, you may find managing your cash flow difficult when there’s no guaranteed salary and it’s up to you to find ways to earn money.
Managing money in freelance careers
Here are some tips for those in freelance careers to help manage cash flow more effectively.
The Problem with Cash Flow for Freelance Careers
First off, you must understand why cash flow might be a problem for freelance careers. There are two main problems. The first is that you are unlikely to always be paid reliably. Sending an invoice, and even doing work, doesn’t mean that you’ll be paid promptly. As a freelancer, you are very lucky if every client you ever work for pays punctually.
The second problem is that you’ll generally be paid in large bulks. You’ll either be paid upfront or upon completion of a project, which can be a big chunk of money. But while you are working on that project, you don’t have time to take other work or even market your services. If some clients pay upfront and others pay on completion, or even late, you can find that there are months between paydays, which is a long time to make your money last.
Prioritize Debt Repayment
When you start a business there are often massive start-up costs to contend with before you are in a position to start earning. When you are in freelance career, the start-up costs are typically low, if there are any at all. But when you are a freelancer, and not a business, your personal finances, and your business finances are the same thing, which means that any personal debt you are repaying will eat into your cash flow.
If you can, try to pay off debts as quickly as possible. Chipping away slowly can help, and there are apps and tools like Tally which can make things much easier. Tally is an app to help with credit card payoff, but they also have a huge range of financial help and advice including an article on the advantages of credit unions, taking a look at how they might be better than banks. If you are looking for financial support and more information on the advantages of credit unions then Tally is certainly a great place to look for those in freelance careers.
Make Sure You’ve Always Got a Buffer
Nowadays many of us are used to living paycheck to paycheck. Our bank accounts are nearly, if not completely empty the day before payday. This is never great, but it is at least manageable as long as your paydays are regular. For those in freelance careers, they aren’t. You need to make sure you have a buffer, ideally of at least enough to cover two months’ bills and other expenses, just in case. If you don’t have a buffer, try to build one up as quickly as you can, by saving some of each payment you receive.
Budget with Quieter Months in Mind
Having a budget that you can stick to is crucial when your income isn’t regular in freelance careers, but you need to bear that in mind when you make it. Take some time to make a budget, including all income and expenses, but base it on your quietest month to date, not a top-earning period. If you can create a manageable budget with the lowest income you’ve had from freelancing, and stick to it every month, you should soon have a buffer.
Stay on Top of Invoicing
Clients can’t pay invoices if they haven’t received them. Make sure you are negotiating a fee and payment window before you commit to working and send an official and professional invoice as quickly as possible. It’s also worth having contracts drawn up which include a payment window (ideally within 30 days for good cash flow) and any late fees clients could incur. Then make sure you are chasing late invoices promptly.
Consider Raising Your Prices
If you aren’t earning enough, and you simply can’t make your budgets work, then you might want to consider raising your prices. If you are working hard and have a steady flow of clients who are happy with your work, but you still don’t have the right cash flow, then raising your prices should ease things and make sure your freelance careers money is moving in the right direction.
Attract More Clients
If you have a period where business is slow, don’t simply assume it will pick up. Start finding ways to attract new clients. You could try networking, in-person and online, offering a special deal, and updating and promoting your website.
Find a Passive Income Stream
If your cash flow is slow because projects take you a long time to complete and you never have the time to earn extra, you might want to consider a passive income stream that earns money while you are working on other projects. If you have a website to advertise your services, adding ads and affiliate marketing can be a great idea. Another option is selling digital products or courses, which take time to set up but can then bring in a steady flow of cash, even while you are working on different things.
Hire an Accountant
An accountant is an expense, but if you can afford it, they’ll help you to keep your income and expenses in order, make sure you are claiming all of the right tax deductibles, and free up more of your time to work. Most people that hire accountants find that they save them money in the long term.
Summary
It’s possible to make a good living in freelance careers, without the stress of worrying about cash flow. It just takes some preparation, good money management, and plenty of organization.
