If, purely from freelancing, you earn enough to cover all your bills and eat more than baked beans on toast, congratulations.
But before you start resting on those laurels you’re surrounded by, just covering the basics isn’t enough. You need to be able to afford to save for five very important things out of your monthly earnings, too.
Saving for The Bad Month (or Three)
You need to save for Bad Months; those months when work unexpectedly dries up or expected work disappears. I say this as someone set to experience this for the first time.
I’ve been unwell; work I was expecting from one client has just fallen through because they’ve decided to go in-house this time; and another regular client has been completely unresponsive (other than paying the money he owed me) after I sent him a late payment terms letter charging him a few cents interest on two well overdue invoices that amounted to hundreds of pounds.
This qualifies as a Bad Month and eventually, all freelancers have them.
Income protection insurance is a good idea, but it can be fiddly, particularly for freelancers who can find it hard to gather the proof they need to make a claim. Also, it can take time for your claim to be processed and money to appear – by which time you could be all out of baked beans…
So what you need is a cushion – an amount of money that will cover the essentials for a month (or even better, two or three months). Hopefully, when you started freelancing, you did so with a financial safety blanket; a fund to keep you going until you were established.
If you didn’t use it, keep it corralled. If you did use it, top it up again in the good times so there’s money there for the bad.
It Could Happen to You
It’s easy to fool yourself that you won’t have even one bad month, let alone more, and carry on spending to your limit, putting nothing aside and making no attempt to find higher paid or more stable work. But it’s a dangerous gamble. Contracts end. Companies reorganise, fold or find other freelancers or agencies. Work falls through.
So, work out now exactly how much you need to cover the essentials today – and aim to build up that Bad Month (or Three) fund.
In Part Two, I’ll be looking at Tales of the Unexpected…
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