I have a friend who has a freelancing wife. She works in a very niche area of the industry, whereas he works at a company doing a completely different job, earning (my guess) around $40,000 a year. She originally used to pull in $60,000 a year, which made them a comfortable $100,000 income family in a low cost area.
She became a freelancer only because she was laid off from her job and was desperate for other options. For about 2 years, she scored a month to 3-6 months at a time, working as a freelancer. Then the recession hit.
Within 2 months, they had maxed out their credit cards and line of credit and had to refinance their home to take out the equity they’ve been paying into it for the past 2 years.
NOTES ABOUT THE SITUATION
As a freelancer, she doesn’t negotiate
My guess is she only asks around $30/hour which is $60,000 a year if she worked full-time (which she did not).
I think she worked a total of 12 months in the past 2 years, which equals out to $60,000 in total, or $30,000 a year.
Generally speaking, as a freelancer, you should shoot for asking double what you earn as a salary, if not it isn’t worth it.
The reason I say this, is because you generally only score 1-6 months at a time, sometimes only 2 weeks, and if you ask for what you are worth for a full year, you are essentially handicapping your income in half.
If you can’t ask for double your salary as a rate, then you should consider not becoming a freelancer, unless you can guarantee that you can work a full year.
How to calculate your gross rate per hour:
Take your salary, divide it by 2000, and that’s your gross rate per hour.
She never claimed any business expenses
The most wonderful part of owning a business is being able to claim SOME of your expenses. I’m not talking about going crazy or doing anything illegal but claiming your cellphone, your gas or mileage and basic office supplies are not out of the ordinary. She did none of that and they’ve lost the tax benefits from the past 2 years.
(Yes I’ve already informed them of what they can deduct as expenses and directed them to the tax agency website.)
They didn’t save a penny
Not when she was working full-time at the company, and certainly not when she became a freelancer.
No emergency fund, minimal savings that lasted perhaps 2 months.
They didn’t watch their expenses
It was a la-di-dah existence for them, floating along on a fluffy white cloud.
They actually upped their expenses and enrolled their kids into expensive hobbies like horse riding, when she was still working and making money as a freelancer.
Then zilch, all the contracts dried up without a peep.
It’s been a year now now that there hasn’t been any work, and he can’t afford to keep up with all of their bills on just his $40,000 income. They’re short $30,000 (gross) to just cover their bills and break even.
The refinancing on their house? They took out $30,000 but have since blown through that (hey, it’s been a year!).
They are VERY strapped for cash.
Freelancing is not an easy existence
The top 3 tips I can give as a freelancer is:
a) Save not 3-6 months but 2 years of emergency funds
It might seem excessive, but 2 years is really the bare minimum if you consider that you might run into real emergencies while trying to live off that emergency fund as a makeshift income for your family.
Let’s say you spend $2000 a month.
If you save $6000, you have approximately 3 months, right?
Well what if at the end of the first month ($4000 left), you end up having to fix your car and spend $2000 doing so? You are now at $2000 left in your Emergency Fund, or a single month.
Alternatively you can think of it this way: Save 1 year of emergency living expenses and save another “year” of the equal amount of emergency expenses for actual emergencies such as your car conking out on you.
This is especially critical for freelancers who can go for a year and a half without working on a contract, before realizing they need to pick up permanent employment.
b) Keep your expenses on a low and on an even keel
Sure, at $30/hour you’re bringing in $4800 a month, or even double that at $9600 a month, but if you fluctuate your spending to keep in line with your income, you’re going to get financially seasick.
Any money you make should cover your essentials (plus a little reasonable extra) and the rest should go immediately into savings for that rainy month or year.
This is the main reason why I (enjoy) keeping a budget, tracking my expenses, looking at what I spent last year versus this year, and keeping tabs on whether I am inching towards lifestyle inflation for no justifiable reason.
(Traveling by the way, is a totally justifiable reason for spending more in a year than expected. I can never get my youth or my time back, so I had better make the most of it if I am financially able to.)
There’s no need to go extreme (yes, I do know that some people consider my budget of $1000/month for personal expenses to be extreme), but go as low as you feel comfortable doing.
Use your head.
Setting an even budget for each month and considering the rest of your income as a bonus for your savings is the best way to keep things rolling smoothly.
c) Keep looking for other ways to improve your situation and make income
Being on the bench is not the time to decide to take the time off and go on a vacation or study your navel on a daily basis.
If you don’t have the money, pick up odd jobs here and there to make a couple hundred to help lessen the slow leak of money out from your bank account.
Even when you do have a job, don’t close yourself off from opportunities to work at a part-time job that will help bring in some extra cash. Even $50/month is something.
When I am on the bench, I definitely take time off to go on vacations (if BF is also free to travel with me), but on the side, I’m still hustling for some side income. I consult for a couple of hours on other projects, I look for odd jobs to complete and I keep thinking of ways to make some extra income without actually signing employment papers.
I also do a little career improvement, such as brush up on my resume, review my notes from other projects and organize them into neat little folders, and do organizational housekeeping that I might have left to collect dust while I was working.
If I have time, I read about my area and try to learn something new.
If my job situation ever dried up (yes, it could happen!) I’d also want to know what job I could get that would fit with the skills that I have.
So what do I do?
I go job hunting to see what’s hot and what’s out there.
I’m never too concerned with salaries of those jobs, only because I already know my expenses for the year, so I can hazard a guess that I’d need at a minimum of $30,000 gross to clear my bills and save some cash on the side. It’s a really liberating and secure feeling to know what you need at a bare minimum to live and be comfortable.
I also start calling up old colleagues, friends and I put out my feelers again.
Nothing really comes of it, but I like tickling my networks. It’s also nice to get out and spend some money on a dinner or coffee, while doing something constructive for your future. If I were left to my own devices, without financial inhibition I’d probably blow through all my cash, shopping everyday! (Just kidding. Kinda. I’d feel too financially irresponsible and guilty to follow through on that.)