When it comes to our money, freelancers share common issues: budgeting to pay for yearly and quarterly taxes, forking over money for our own medical insurance, and then there’s that good ole’ self-employment tax. And of course there’s the challenge of budgeting with variable income. The thing is that depending on our line of work and how we get paid, how our money fluctuates it can vary.
A recent article opened my eyes to the fact that while we commonly think of freelancers as writers and graphic designers, the top industries for freelancers actually include education and training, IT, and medical professions. Who would’ve thunk?
I’m really into creating systems to manage my money and spend a lot of time on how to set things up so I do the least amount of work and thinking later. I seriously nerd out about this stuff.
Here are four types of freelancer money flows and some tips on how you can manage your money accordingly:
Freelancer $$ Flow #1: Slow and Steady
Types of Freelancing:
These are usually jobs where you have a steady roster of clients. You might have four or five clients at the same time, a few with whom you work with on retainer.
If you work in social media management, as a content writer, or consultant, you most likely fall within this camp.
Tips on Managing Your Money:
+ After you sock away money for taxes and your monthly expenses, think of allocating the rest of your money based on percentages. For example, whatever is leftover you can put 25 percent toward your vacation fund, 25 percent toward retirement, to pay off credit card debt—stuff like that. This is what I do, except I treat my retirement fund as a recurring monthly expense and sock away the same amount every month.
+ While it may not feel urgent at the time, think of ways you can perhaps expand your duties with existing clients or new clients should your bandwidth change.
Freelancer $$ Flow #2: Long and Intense
Types of Freelancing: Those who work on long-term projects, such as web designers, UX/UI designers, those who work in the film industry. While you may work intensely on a project, you also (hopefully) make a killing.
Tips on Managing Your Money:
+ Have a robust “fuck-off fund.” You really cannot have enough socked away for your emergency fund, and it’s more apparent when you freelance.
+ If you need that money to tide you over during any dry spells, put your paychecks into a separate account and pay yourself a set fee every month.
+ Be on the lookout for your next gig well before your current one ends. We will get into create a CRM, or Customer Relationship Management database, at a later post.
Freelancer $$ Flow #3: The 9/3
I call this the “teacher money flow,” as it’s something that people who work as contractors in the schools deal with. You work nine months, then get three months off.
Types of Freelancing:
They’re usually school psychologists or those who work in entertainment where the season is seven months, so they have five months off.
Tips on Managing Your Money
+ If you’re fortunate to make enough during the year, do the math to figure out how much you need to save so you have enough during the time off to tide you over. It’s a nice place to be if you have money left over at the end of the month to not have to work during your time off. You can also have a separate bank account and pay yourself a set amount every month.
+ If you’re not too busy while you’re working full-time, look into getting a side hustle. There are plenty of ways you can earn an extra buck these days, all it takes is a little bit of creativity. You can also pick up a side hustle that relates to your main gig. For instance, if you work in education, you can be a tutor in the summer. Or if you work as a motionographer for a TV series, you can pick up projects at production houses around town. That sort of thing.
+ I think saving for short-term and long-term goals can be challenging when your money flow is the 9/3 cycle. I think you just need to figure out how much you have comfortably saved in your baby emergency fund (usually 1-2 months of your savings) before you can start saving for a vacation, new computer, or for retirement on the regular.
Freelancer $$ Flow #4: The Parrot
Types of Freelancing: Contractor jobs in IT, education, or the medical field may fall into this category.
Tips on Managing Your Money
+ After socking away money to pay off your taxes, make sure you budget for your medical insurance, and enough money to cover your health premium.
+ Keep track of stuff you can deduct for taxes, such as mileage, train passes, equipment you might need to purchase for the job, books you buy, business lunches, continuing education courses.
+ Keep a robust emergency fund, in case you need to find a new job.
I call this one “the parrot” because it mimics working as a full-time employee but without the benefits. Note that whatever profession you work in and no matter how your money flows as a freelancer, you’ll need to budget for those who are “Parrots” need to save for.
What is your freelancer money flow? What are you some ways you can create a structure and process to stay on top of your money?
