Issue 12  •  Spring 2013

On Your Own: Freelancing and Your Finances

Written by Andrea Davila
Dying to go backpacking with your best friend around Romania? Want to learn how to fly an airplane? Committed to opening an animal shelter? While learning about and maintaining your financial health might not seem as cool as any of the above, it is one of the most important tools you can have to help you create the life you dream of living, and do all the things you dream of doing. Money for Nothing aims to demystify that scary and confusing world of personal finance for all us normal folks out there.
FreelanceGlance.pngDying to go backpacking with your best friend around Romania? Want to learn how to fly an airplane? Committed to opening an animal shelter? While learning about and maintaining your financial health might not seem as cool as any of the above, it is one of the most important tools you can have to help you create the life you dream of living, and do all the things you dream of doing. Money for Nothing aims to demystify that scary and confusing world of personal finance for all us normal folks out there. 

Last time we met, we talked about the most dreaded of subjects: taxes! Hopefully you don’t all hate me now, because this issue we’ll be talking about a topic that might be more near and dear to your heart—working for yourself. While many of you may be in the position to own small (or large!) businesses and truly be “self-employed,” we’re starting smaller here at Sadie—with freelancing. For those new to the term, freelancing is working independently for various employers without any long-term commitment. (Hold up—Merriam-Webster says it is “a mercenary solider especially of the Middle Ages—WTF M-W?!) Typically, freelancers work in one area of expertise and take on a number of projects related to that field; writers, photographers, designers, and programmers usually freelance at some point in their career. 

Why Freelance? 

Like everything, there are lots of different reasons. One of our fearless editors here at Sadie, Jesse, is a freelancer because, “It gives me more time to pursue my own projects like writing and music.” If this sounds like you, here are some things to think about: 

1. Being a freelancer doesn’t guarantee that you’ll work less and earn more. In fact, only 22% of freelancers claim less work and higher pay. Slightly less than half of freelancers work and earn the same or less than they did previously, which, in translation, means that freelancing is not a get-rich-quick scheme. 

2. Being a freelancer does guarantee you’ll have more control, and often, more flexibility over your days. While this might not mean more money, it does mean more happiness—over 88% of freelancers say they are glad they began freelancing. 

3. As a new freelancer, you’ll be responsible for generating, as well as completing, projects. A significant amount of your time will be spent on marketing, pitching, and promoting yourself and your work. Be prepared—it can take up to two years to see work coming to you unasked. 

4. Your benefits are your responsibility; items like insurance coverage, transit, Wi-Fi, and cell service are your expenses now. Not only will you have to pay for these things, but, more dauntingly, you’ll need to appropriately choose and enroll/register. This takes time. 

5. Ugh, sorry, I gotta say it: Your taxes will be more complicated. If that’s the only thing getting you down, email me and we’ll figure it out. 

Let’s Do This! 

For freelancers, new and old, here’s a list of things to know that will make your lives, financial and otherwise, a whole lot easier: 

Know Yourself

Being without a steady paycheck can be terrifying for some, exhilarating for others. Which are you? Knowing your tolerance for risk will help you figure out how much money you need to keep on hand in case of a cash crunch. Some people will only feel comfortable with a couple months rent in their bank account; others are fine living check to check. There is no right way to do this, just do what feels right to you. 

One day, you’ll have more offers of work than you have time. How will you know when you are ready to turn down work? How will you make decisions about which work to take? These questions are easier to ask and answer at the outset of your freelancing career. Make a quick list of priorities and values for yourself—if your work compromises those, don’t take it. Also, doing a quick calculation of the value of your time can help you decide if a job is “worth it” or not. 

Know Your Budget 

Having clarity on how much money you need to cover basic expenses is helpful for anyone, but for freelancers it is critical. If you don’t currently track your expenses, see my previous article, “Enough Theory, It's Action Time!” or sign up for one of the many personal finance tracking sites out there—I use Mint.com. Once you know how much you need on a monthly basis, you can back out the number of hours you need to work, and the rate per hour. 

Primarily, your goal is to cover your basic expenses. But, over time, you’ll want to account for savings, as well. With freelancing, no work means no money, which means you have to save in advance for sicknesses and vacations. Building those goals into your budget is helpful—you’ll know to take on more work if possible in anticipation of a work stoppage. 

Know Your System 

Successful freelancers are also expert time managers. Being structured and methodical about how you spend your time helps you maximize your billable hours and still leave time for your own pursuits. Whether this means getting up at 6:30 a.m. every day, or dedicating certain days to certain projects, having a system will make your unstructured time more productive. Both Google Calendar and Google Tasks are excellent tools, but sophisticates can always use a more intense process, like any of the tools associated with the organizational method,“Getting Things Done.”  

The hugest time-suck for freelancers is keeping track of billing work and receiving payments. Instead of trying to hack this with your own system, you can use one of the many systems out there to help you—they’ll keep track of your clients, your invoices, and your payments, so you don’t have to. Trip Wire Magazine has a list of thirty systems to get you started. People seem to love FreshBooks and BillMonk, for simplicity and ease of use. 

Freelancing, at its core, is a very tricky balancing act—one side is income, the other time. You’re in control of the balance—how much energy you devote to making money or making art/food/relaxation is your choice. It is critical to always be aware of this delicate balance and make sure to recalibrate often. 

One last thing to know, which goes almost without saying: Know your industry. Reading reports on how other freelancers in your area of expertise work, bill, and organize will give you clarity and insight. 

Share this post