This is a guest post from Dwayne Weiser.
Working for a boss from 9 to 5 can cause you to expect a regular paycheck every week, two weeks or month. While this may be nice, you might feel creatively stifled by the corporate treadmill.
When you work for yourself, you gain independence, autonomy, and freedom over your talents.
Unfortunately, the trade-off for freelancers might be a more irregular paycheck. Of course, it all depends on your work schedule, but freelancers might need to be more careful about pinching pennies.
Here are strategies on money management for freelancers.
Starting Time Rich & Money Poor
As an independent contractor, you can set your own time schedule, fee rates and progress at your own pace. You will no longer be held back by a jealous boss, who wants you to give him all the credit, while you do all the work.
Now, you will receive your just due. The sky is the limit.
“Those who fail to plan, plan to fail.” – Winston Churchill
Set some goals for yourself. When you first start out, you are “time rich and money poor.”
Therefore, why not use this time to create a solid business foundation? You can create your mission statement, logo and business plan.
What do you want to accomplish? How much do you expect to earn each month?
Since you have plenty of time on your hands, get well-organized. Even when you start landing jobs, you should still have extra time. Use it to deliver the best quality of service; this will build up your reputation.
In order to develop your business plan, you will need to develop a basic understanding of your financial well-being. Start by calculating your credits and debits.
How Much Do You Earn?
Every successful business needs a positive cash flow, but this might be even more important when you first start out. You need to build up your bank account.
Some entrepreneurs will frame their first paycheck. This keeps you humble, as you remember your simple beginnings.
As you complete jobs, the funds will start flowing in. There is both regular income and special one-time projects to provide the funds you need.
These should be treated differently.
Your regular income will create the foundation for your freelancing budget, brick by brick. No matter what their size, these recurring paychecks will be the base line for your income projections.
Create Cash Flow
Your cash flow is the movement of cash through your hands. Cash flow gives you more options; that is why banks look so favorably upon positive cash flow.
One-time projects might pay per piece or per project. You can treat these like a Christmas bonus – use them to build up your bank account, increase your petty cash and upgrade equipment to position your firm for further business growth.
Over time, you will naturally get a feeling of about how much money you have on hand which will help you manage your finances.
How Much Do You Spend?
The freelancer needs to be very frugal, especially when starting out. Concentrate on the utilitarian features, you need to complete your tasks, on-time. You might want to hold off on purchasing luxury, exotic, artwork, statues or gewgaws. Build up your bank account and cash flow, at first.
Concentrate only on the utilitarian features you need to complete your tasks on-time. You might want to hold off on purchasing luxury items, exotic trips, or gewgaws (trinket). Build up your bank account and cash flow first.
Work, as much as you can, on a shoe-string budget; detailing your income and expenses. The nice thing about being a freelancer is that you can keep your costs low.
You should maintain this frugal mentality when you determine how to pay for the primary inputs for productivity:
Do you want to take out a loan as a freelancer? Unfortunately, when you are first starting out, the higher debt burden from a bank loan can be crippling. On the other hand, some freelancers finance themselves using their personal credit cards.
The credit card rewards program can give you tremendous discounts on dining, travel, and lodging. You could even receive debit cards for those supplies, you already purchase.
If you are an online freelancer, then you will need to gradually upgrade your website as your customer base grows. Learn how to build a niche site in order to generate consistent income and serve your committed clientele. Develop deeper connections, using customer relationship management (CRM) software.
There is plenty of rental space for running your business. You might even, simply rent a desk. At a co-working space, you can get the basic things like WiFi, printing, or unlimited coffee. If you do this, start with a short-term rental agreement and look for sales or special deals. This helps you manage your limited funds more easily.
As a freelancer, you are probably a do-it- yourself (DIY) type person. This is one of your key advantages since payroll is the #1 expense for other businesses. When you start, you don’t have to pay employees, it’s just you. You could find government grants or free resources at your local library.
You can also find government grants or free resources at your local library that might help provide funds towards building your business too.
Balance Your Budget
After three months or so, you should gather all of your paychecks together and calculate your monthly credits and debits. This can form the foundation for your company budget.
Initially, you are hopeful that you will earn plenty of lucrative contracts, but you don’t want to count the chickens before they are hatched. So, at the beginning, just estimate your budget. Pencil the estimates into your budget for the first six months or so.
Keep Accurate Records
After those six months have passed, you will start to realize which of your revenue streams are reliable and which aren’t. You can divide your credits into recurring and one-time.
You can divide your debits into fixed and discretionary.
Grow slowly, but with determination. It is better to do a few things well than to do many things badly. Understand your budget to manage your finances properly.
Follow these four steps to make sure that you manage all of your freelancer finances properly:
- Collect Receipts
- Keep Records
- Finance Software
When the cashier asks, “Do you want a receipt?” say “Yes.” This is the first step in record- keeping. Even if it is relatively minor, make sure you keep solid records of each expense.
Once you have all of your paper receipts together, enter them into a computer database. This record-keeping step will require you to create categories (i.e. food, transportation, supplies and so forth). Compile a report based on each category heading.
You can get great finance software on your smart phone or computer, allowing you to update your records in real-time. Analyze these financial figures to identify trends.
The great thing about modern credit cards is that they are almost like having your own personal banking assistant. Not only do they provide you with a detailed monthly statement, but they also provide insurance. Cash doesn’t do this.
Write down a firm budget with fixed income and expenses. Once you have made a budget, your next goal is to earn enough to pay for all of your fixed expenses.
When you are a freelancer, you need to make sure that you have the supplies, tools, and equipment to continue to operate 24/7/365. You don't know when your equipment might break down.
Keep some spare petty cash on hand to pay the mechanics.
Build Up Your Reputation
People need to have work done, every day. If you have built up a superior business reputation, then you will get more jobs. Therefore, you should concentrate on building up your business reputation in the early stages.
A new customer might give you a small order, to test you. If you complete that task well, then you might get larger orders.
Build It and They Will Come
Financial institutions will value customers based on their assets and by how long they have had relationships with them. Banks offer their best customers their best financial products, services and rates.
Small, Sleek & Streamlined Freelancer
Remember that as a small freelancer, you can make decisions faster than the large multinational corporations. They might need to fill out triplicate paperwork and have numerous layers of bureaucracy before headquarters can make the final decision.
Use your small size to your advantage.
Time Is Money!
Everything will work itself out. Don’t purchase anything until you need it. You must develop a frugal mentality as you manage your finances.
Keep some surplus cash on hand for unexpected expenses. Let your high-quality work speak for itself and enjoy your freelancing freedom!
Dwayne Weiser lives in Springdale, Arkansas and graduated from Arkansas Tech University with a degree in Computer Science. He works as a programmer and loves explaining everything he can about technology, computers, gadgets, and internet.