Freelance income is never steady. Sometimes you’re so buried in work you don’t know what day it is. Other weeks are so quiet, you wonder if your email is broken. But no matter what happens, there are still bills to be paid — and due dates don’t wait until business is good.
If you’ve struggled to keep up with bills as your business ebbs and flows, it doesn’t mean you’re bad with money. It’s simply an indicator that the way you manage your finances needs to be as flexible as your income.
Let’s dive in, and learn how to build a system that can handle the swings — without needing to recalibrate every week.
Step 1: Beware the Bottom Line
Your bottom line is the basic income you need to make to meet your monthly obligations. They depend on your situation, of course, but that number almost certainly includes housing costs, bills and food. Having that baseline can help you see your monthly income clearly, and allow you to allocate the appropriate funds to the most crucial areas of your life.
To ensure you’re covered, here’s what you need to do every time you get paid:
- Pull taxes first: Set at least 20% aside for the end of each quarter.
- Consider when you expect to be paid again, then split your paycheck into sections accordingly:
- If you’re coming up on the first of the month and won’t be paid again until later the next month, allocate the majority of your paycheck to your housing costs and essential bills.
- If you’re likely to get paid again before your major expenses are due, set some of your income aside to cover those — and use the rest to fund non-essential but still-important goals.
Over time, you can add mini-accounts for things like gear upgrades or future time off. Splitting off those expenses means you keep them safe from getting sucked into other funds.
Step 2: Optimize Your Contract
Now that you have a basic income strategy set up, we can get into the more advanced moves for freelancers.
And something all freelancers know well is that a good contract doesn’t mean your clients will respect it. But having a clear, common-sense payment system with safeguards can do wonders to keep most clients in good standing. These small changes set you up to stay on top of your earnings, and generate income before completing an entire project.
Essential Freelance Contract Terms
- Require 10-25% of the total projected cost as a deposit at the start of a project
- If the project takes more than a few weeks, include a condition that allows you to collect partial payment for the work produced thus far.
- Add reasonable — but progressive — late fees. The time you spend collecting payment should be compensated, after all!
- A net-15 or net-30 clause: This gives your clients a clear deadline for payment.
- A kill fee — your work is still valuable, although the project may have been cancelled.
- A note that work pauses if invoices aren’t paid on time.
Step 3: Have a Backup Plan Ready
The beauty of freelancing is that you work for yourself — but that means you need to be your own safety net, in case you have to take time off. Don’t wait for that inevitability to happen to figure it out — have a budget and a game plan to make tough decisions simple.
Backup Plans for Freelancers
- Build an emergency fund: It might take a while, but work towards a goal of saving three months worth of essential spending; hit that, and keep adding to it until you reach six months’ worth of money or more. Be sure to adjust as your costs change, too!
- Anticipate burnout: Sometimes, you bite off more than you can chew. So build in a rewards system for each check you receive — withdraw a flat dollar amount or percent of the check, and transfer it to a high-yield savings account. This is your vacation fund, and you’ll be happy it’s there when you need a break.
- Keep your skills sharp during periods without work: Show off what you can do, or push yourself to learn a new skill. Continuous growth can pay off with bigger, better contracts!
- Engage with your network: Staying in touch with former colleagues, collaborators or clients makes you visible and memorable. Showing that you’re engaged in the work is almost as important as the work itself.
Change the Game (If Needed)
If your debts are eating into your quality of life, it’s time for a change. Talk to the experts at Accredited Debt Relief to see how you could save 40% or more on eligible monthly debt payments, and how we could even help you get debt-free in as little as 24-48 months.