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What has my freelance life taught me about finances?

'Budget' photo (c) 2012, Tax Credits - license: http://creativecommons.org/licenses/by-sa/2.0/
Financial matters is the hardest part of freelancing for many people. And for me, too. It can be a real nightmare, because your income can change month after month. Hopefully this will be a good change, but there will also be slow periods with almost no work and thus no payment coming in.

I am still learning to manage my finances. The fact that I am a registered individual entrepreneur motivates me to keep the budget and not spend all the money at once (though at times I do feel like spending it all on shoes, makeup and other absolutely necessary things ;)) So here are my financial tips or rather lessons that I've been taught. Please feel free to add yours in comments!

1. Before you set your rates:
  • Count your expenses. I mean count how much money you need for food, clothing, any loans/debts that you may have to pay + taxes, insurances etc.
  • Then you need to think about professional costs - new equipment/software, membership payment in any professional organizations etc.
Then you will know the minimum that you need to earn. I count the expenses on a monthly basis, but you can choose counting them week by week etc. That will help you not to set your rates too low.

2. Market, market, and market your services. Marketing is a key element that helps you to break the feast and famine cycle. Marketing may include:
  • attending networking events, both online and offline;
  • social media marketing;
  • direct advertising;
  • telling your friends you need more work. I am so thankful for my friends! As soon as they learned that I went freelance they were the ones who provided me with work, gave advice and helped as much as they only could! I am very thankful to them. They introduced me to some clients with whom I've been working occasionally since then.
  • I think one of the best ways to avoid the feast and famine cycle is to deliver excellent work every time. It's a vital part of your marketing when you show by actions that you are as good as your website says you are (or probably even better!).
3. You absolutely need to know how much you actually earn. I still keep my Excel sheet of all projects, deadlines, payments and invoices. I wrote about it here. It helps me greatly!
4. Make a budget. I do it in a simple way: I make a 2-column chart. In the first column I have my expenses for a given month and in the other column I list expected payments and their dates. That helps me to see how much extra money I have, because there are always items on my wish-list. Besides, it's always nice to have some money set aside for holidays, gifts for friends etc. ;)
5. After you made your budget the next important thing is stick to it! Everybody hates unexpected costs, though some of them are inevitable, but do your best to stick as closely to your budget as possible.
6. Do your best to set some money aside in case something unexpected happens and you need money! People always hope nothing will happen, but life is life...
7. Do your best not to take any loans. In my case, this has not always been possible. But I have always done my best to keep my credit history spotless.
8. If possible, hiring an accountant would be a good idea. I am actually thinking about it, but I am still not sure I need an accountant on a permanent basis. I do use the help of a professional accountant at the time when I need to fill in my tax declaration at the end of the financial year.
9. One of my greatest concerns has always been insurance. I don't have professional indemnity insurance yet (Russian insurance market is different and insurance policies are different, too. But I am looking for a suitable variant). I do send some money to the Pension fund every quarter to make sure I won't die of hunger when I get old. Besides, I have insured my daughter. She is going to get a substantial sum of money when she finishes school and needs it for her higher education, plus she's insured in case (God forbid!) something happens to her parents. The monthly payments I have to make are fairly small, but at least I am more or less calm and sure that my child will have an easier life than I had during my university years.
10. As a little bonus, here is an article in FreelanceSwitch blog about personal finance apps that can help you create a budget and stick to it. Hope you find it useful!

Dear colleagues, how do you manage your finances? Were my tips helpful? I am looking forward to your comments!


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