As you probably know, I mostly work with creative freelancers and small business owners. It's because I am one. I was a freelance TV producer for 15 years, and I'm now a small business owner, so I totally get how it may be frustrating to figure out how to get off of the feast or famine roller coaster and know how to save and invest for the future, when the present is so uncertain. In this collaborative, contributed post, here are six financial things to keep in mind as a creative freelancer.
Keep Track Of Your Earnings And Expenses
The number one thing you can do is keep track of everything. It's important to know what's coming in, what's going out and what do you really want. This simple tracking system will help you see where all your money goes and what profitable projects are so you can adjust accordingly for future work. (A CPA who spoke in my Financial Freedom for Creatives Club loves Wave over Quickbooks.)
Make sure You also write an invoice every time someone needs to pay. Writing up invoices can be a hassle, but it's worth it to get paid. This will allow you to track hours worked and remind yourself how much money is coming in from each job so that you don't forget.
Be Mindful Of Taxes
Taxes can be a nightmare, if you're not on top of your tracking. It takes more time to calculate and file tax returns at the end of each year. And you may have to pay more. Therefore, make sure you know what's expected of you when paying taxes so that your profits don't suffer later on down the road. It's advisable to find a CPA to manage your taxes, and a good one will you help you to get more money back and give you peace of mind that your tax returns are done correctly.
Save Money For An Emergency Fund
As a freelancer, you're not likely to get sick time or paid vacation. Therefore, you need an emergency fund that will cover your expenses in the event of the loss of clients, illness, and a death in the family. Having this money set aside is very important because it can help with everyday living when no jobs are coming in. It's also a good runway to have, especially if you're starting out.
Don't Be Afraid To Negotiate Rates With Prospective Clients
When you're trying to get a freelance gig, it's tempting to take the first offer that comes up. This is a big mistake. It's improbable that your first offer will be the most you can get, so it's important to negotiate for better rates.
"Freelancers who fail to negotiate well can miss potential revenue, delay the growth of their project portfolio, and lose future opportunities that might otherwise come in through with the referrals that come from successful relationships with clients."
Resist the temptation to discount
In the above Harvard Business Journal article, "when pursuing a partnership, big corporations can undercut competitors with steep discounts; because of their size they can absorb and recoup the loss over time. Many freelancers also offer discounts to win work but doing so is less sustainable."
Let’s say you’ve determined that $150/hour is your standard rate. To attract clients or win a project you feel passionate about, you may consider dropping that to $140 or even lower. But that sends a message that your work is worth less. And especially in online freelancer forums like Upwork where potential clients can see your previous rates, it becomes difficult (if not impossible) to later increase your rates to their true value –even as you gain experience.
Learn How To Manage Your Cash Flow
Cash flow is a concept in finance that refers to when money comes in and goes out. Managing your cash flow means that you understand how to structure payment terms to ensure that your money is going in and out at the right times, so you can keep a healthy balance. For example, a good way of securing consistent income is by charging a deposit for the work to be done and the rest later. The key is to always have money available to take on new projects that might incur costs and to live on.
In conclusion, being a creative freelancer can be challenging at times, but there are many things you can do to make it more manageable. Follow the tips above so that you can stay on top of your finances while living your dream.