Do you have a plan for extra money coming in above monthly budgeted expenses?
Yes, you need a plan for that. You see, freelancers don’t have a steady paycheck. There will likely be months without income. There will definitely be months with less income than your expenses. If they go on for three, four months – the infamous summer slump – or even longer, like when the nation is dealing with election drama and the fall rebound never comes – can you cope?
Part of coping is having a plan for the good times, before they arrive. Note that even in one of our oldest stories, Joseph had to start building granaries for the seven good years before the first harvest came in, so he had enough storage when the land was producing to set aside food for the seven famine years.
What should your plan look like? Well, first, do treat yourself to something nice – otherwise you’re going to feel deprived. So a nice dinner to celebrate Royalty Check Day, or that pair of boots you’ve been wanting. But after that, rebuild your cash cushion and reduce your expenses. What do I mean by that?
Fill your gas tank.
Pay your quarterly taxes.
Pay off your car.
Pay off your credit cards.
Pay off your house.
When a friend quit smoking, she was living on a ramen & rice budget – and every time she found she had enough money to buy a pack of cigarettes, she went to the gas station and put that money into the gas tank instead. Pretty soon, she was no longer permanently worried about running out of gas on the way to and from work, because it was always at a half tank or above. Then she started paying off the overdue bills – and the lack of worry, the knowing she could make it to work, and that she wasn’t going to get the power shut off again, was enough to practically make her into a zen master compared to where she was before. You ever meet someone who was calmer and happier when they were going through withdrawal?
As a freelancer, you need to have the same mindset. If you have extra money, put it somewhere that will cause you less worry in the long run. Paying your quarterly taxes is pretty high on that list, because if you don’t do it when you’re flush with cash, how are you going to manage later? Second, pay your bills. Third, pay off the things that demand money every month – because those are the things that will hurt the most on months when you don’t have enough money coming in. If your car is paid for, then you don’t have to worry about repo; if your house is paid for, then you don’t have to worry about eviction or foreclosure.
(One caveat: if you’re planning to move within 3 years, don’t sink it into the house. Rule of thumb: you’ll lose 1% of the value of the house when you sell, and another 1% of the value of the house when you buy. Because fixing a place to sell, and fixing the little things on the house after you buy one, costs money. Keep that cash in a separate account that you call “New House”, so it’s available to make buying and moving easier.)
Now, obviously this can’t cover every person’s life. If you were forced freelance before you had 6 months cash cushion, “remove worry” may be much more immediate. Have you been limping by on tires so bare that you can’t see any tread left? Is your spouse putting up with near-blinding pain because you can’t afford a root canal? Are any of your bills coming with an “overdue” stamp on them? Set aside enough to cover the quarterly taxes (so you don’t get hit with the freight train labeled IRS) and take care of your most immediate pain and worry. Use the breathing space to get a couple good nights of sleep, and then tackle the world.
And if you want more good advice, Kris Rusch tackled the same subject Thursday: http://kriswrites.com/2017/02/22/business-musings-writer-finances-versus-the-paycheck-world/
And if you want a bit of an escape from reality, where the good guys triumph and the bad guys get what’s coming to them, try Scaling the Rim. It has action, adventure, romance, and plausible science fiction! What’s not to like?