Freelancing has become a dream for many due to its promising freedom – being able to choose your own jobs, set your own working hours, and avoid the usual office structures. However, there are also more risks in freelancing, such as irregular income, lack of health insurance and more. Here are a few tips to help you manage your finances as a freelancer.
Save up for emergency fund
The common advice is to save up three to six months-worth of living expenses as an emergency fund, but Bundle suggests freelancers should save up six to nine months. This is to prevent financial breakdown when there are no jobs, or when the payment from client doesn’t come on time. Jamie Beckman, New York-based freelance writer and author of The Frisky 30-Day Breakup Guide, saved about seven months’ worth of money before jumping into the field. “In retrospect, I’d probably recommend saving more than that just in case,” said Jamie.
“I was able to get a good amount of work right off the bat, so I haven’t been dependent on my savings (knock on wood!), but having a healthy financial cushion buys me peace of mind.”
Track your time
According to freelance writer Laura Shin, tracking the time spent on work will help you calculate your income per hour, per job. “A freelancer’s main currency besides money is time, so it’s imperative to know how you’re spending it,” said Shin. “That per-hour “rate” also helps me see what places I should work for less, where I should try to work more, or even where I might want to request a raise.”
Set your rate accordingly
“If you’re used to thinking about the $X/hour rate from your old job, that rate won’t work now that you freelance, unless you are able to fill all 40 hours of your week working on projects,” said Shin. “Most freelancers will need to charge rates that take into account the time you’re running your business but not necessarily charging a client, plus the additional expenses of paying your own benefits.”
For example, a freelance graphic designer should not only charge for hours spent working on an ordered project, but also the hours spent on researching, liaising with the client(s), and other additional expenses which might not be directly related to the project, such as electricity, internet, health insurance and more.
Discuss milestone payment plans with your clients
When involved in a long-term project that spans multiple weeks or months, it is wise to discuss a milestone payment option with your client to make sure you receive income on a regular basis throughout the period rather than having it all sent in one go at the end of the project. Walter Green of Lifehacker suggests three ways to make it work:
“If a job is for a certain time period or number of hours, make sure you can bill your client each month or for every so many hours you log. If there are obvious milestones within the project, set up your billing around those. If nothing else, break the job up into 25% blocks and bill for each of those.”