How to deal with income instability as a freelancer
By Carrie M. King →Money may be funny in a rich man’s world, but let’s face it, they’re the ones not paying your invoices on time. Here are a few ways to make income unpredictability less scary so you can live your best freelance life.
Tell people you’re a freelancer and 9 times out of 10, they’ll say “That’s cool! [pregnant pause]... But isn’t freelancing really insecure?”. While this might sound like a mild neg regarding your life choices, they’re unfortunately not wrong. Freelancing absolutely can be insecure but it also opens up a whole world of possibility simply not available to employees.
For all its benefits, freelance projects can come and go and even busy freelancers face a very different payment cadence to salaried work. However, with a little forward-planning, some smart choices, and a few acts of financial self-care, you’ll be more than capable of navigating the frequently unpredictable landscape of freelance finance.
1. Make a plan
It might sound impossible to plan for unpredictability, but you can and should at least try. If you’re thinking about going freelance, sit down and figure out how you’re going to make it work, who your potential clients could be, how much money you need to earn and spend, and where you might be able to find support networks and structures. Writing a business plan will give you a realistic guideline and can be used to apply for grants, financial assistance, or business loans.
2. Set aside an emergency fund
Because freelancers don’t receive regular salaries and you can’t always guarantee you’ll be paid on time, there may be months where you have very little income, and others when you feel like you’re rolling in it. For those periods when income is slow, you’ll need a little emergency fund, i.e. enough money to get you by for about 3 months. Having a fund set aside increases your flexibility and enables you to weather financial storms without having to give up on the freelance dream.
3. Be choosy about clients
Don’t say yes to everything! I know it’s tempting to take whatever’s on offer, especially when you’re starting out, but remember that the best clients are those who respect your work, who pay you well, and with whom you can build long-lasting relationships. The work you do today will act as your reference letter for future jobs. So find people and projects that enable you to create something you can be proud of.
4. Budget, budget, budget
Did I say budget? We’ve established that freelance life comes with financial ups and downs. That means you need to be smart about your spending. It can be helpful to keep track of your income and outgoings over a period of a few months to better understand how much you spend versus how much you really need to spend. Once you understand your spending habits, set a weekly or monthly budget to keep your finances under control and get smart about when you drop cash. Don’t forget to budget for tax, business expenses, fallow periods, potential unexpected costs, personal needs, and fun!
5. Manage your cash flow
If budgeting makes sure you live within your means, making sure you get paid on time enables you to stick to your plans. At Goose, we’re working on a service that makes sure you get paid when you should. Watch this space. Develop an awareness of how much you need to earn and learn the rhythm of your monthly expenses. Send invoices promptly and—yes, I know it’s annoying—follow up when they’re unpaid. The status of your invoice is a lot more important to you than any client’s accounting department.
6. Build a community
When no one’s knocking on your door with new work projects and your pitches are falling on deaf ears, what’s a freelancer to do? Talk to your community. Whether that’s online or *gasp* IRL, speaking to the people you know is the best way to find new projects. Word-of-mouth recommendations are easier for everyone and all parties benefit from a situation where clients and freelancers come recommended.
Psst! We’re working on a solution for this, too!
7. Explore passive income opportunities
I once googled ‘passive income’ and was dismayed to discover how much active work goes into generating it. However, if you do a little research and have the capacity to invest money and/or time, there are a range of ways you can generate income that, over time, becomes low-effort. Maybe you can gain enough extra income—and know-how—to invest in stocks, or maybe you have a particular knowledge set that you can use to create an online course. Maybe you have a great eye for fashion and can sell great vintage pieces on the side, or maybe you can sublet your living room. Everything adds up so think about how you can earn a little extra every month.
8. Avoid a 'time is money' mindset
When you charge an hourly rate, it can be easy for people to feel guilty when they’re not maximising every minute. However, this can rob you of crucial downtime and flexibility. Yes, your time is valuable, but not all value is monetary. If you feel bad for not making bank every waking hour, you deprive yourself of one of the great joys of freelancing: flexibility.
