How to build financial security as a freelancer is one of the most common questions I hear when I talk to other contractors. It’s one of the most pressing issues you face when launching your own business, and understandably so; going independent means flying solo, and financial concerns need to be covered thoroughly for peace of mind.
Despite the estimated $1 trillion dollars freelancers will earn this year, financial stability remains a key concern. Can you enjoy the creative freedom and schedule flexibility of being a freelancer, while also paying the mortgage, saving for retirement and taking the occasional vacation? In reality, it takes time to get there, but it’s absolutely possible. Enter: the freedom fund.
The Need for Financial Security
Your overall financial picture determines a lot about the quality of your work life as an indy. If you need immediate cash flow to pay the bills, you may have to take on work that’s boring, pays below your desired rates or requires you to interact with difficult clients. Making ends meet is what you focus on, rather than finding opportunities that interest you or help you grow.
A lack of financial security also makes it hard to take advantage of a flexible schedule, whether that means making your own hours or traveling. A dedicated security net can help align your career more closely with your freelance dreams. A freedom fund, however, is different from your emergency fund. Ideally, your emergency fund (which should have somewhere between $1,000 if you’re just starting out and three–six months’ living expenses if you’re more established) is where you go for genuine emergencies. These might include unexpected car repairs, a dead laptop or medical bills.
Your freedom fund is a pot of money that allows you to take time to work on a personal project, to offset the extra expenses from becoming location independent or to take a leap and become part of a dream project. Keep this money separate (such as, in a separate bank account) and be clear about what each bank account is for.
Strategies for Establishing a Freedom Fund
- Cut your spending: Fundamentally, saving money is a fixed equation. It’s a little like losing weight: calories in, calories out. Dollars in, dollars out. Building your financial security starts with spending less or earning more. For example, I decided to keep my car as long as possible and store away the equivalent of a car payment each month. There’s nothing exciting about a 10-year-old car, but it’s reliable and not spending $300 each month on a payment helps free up cash that gives me more flexibility. Could you cut cable, make coffee at home or streamline your spending on other items?
- Increase your earnings: Another strategy is to increase your earnings. Financial experts always advise regular employees to manage raises deliberately; do the same with taking on an assignment to cash flow your freedom fund. For example, a copywriter might be able to take on a monthly client that pays $500 with the goal of contributing the post-tax amount specifically to the fund. You work hard to earn your money, so think about how to put each dollar to work in terms of achieving your goals.
- Consider a high-return sprint: Let’s say you typically work forty hours per week. Another way to give your freedom fund a cash infusion is by doing a sprint. For one quarter, consider taking on a project or job that’s higher intensity but also higher return. Earlier this year, I took on a very high-stress project that left me working seven days per week. It was a high-investment, high-reward situation that had a clear end date and allowed me to achieve a specific financial goal. While it’s not smart to sustain that pace forever, it was easy to do for a period of time.
- Look for recurring revenue sources: Freelancers have to ask a lot of questions about each new gig before they accept. However, one criteria that’s worth evaluating is whether the client could be a source of recurring revenue. For example, a company may hire a writer for ten articles each month or be willing to put a freelance coder on a quarterly retainer for a certain number of hours. While these funds aren’t guaranteed to go into your freedom fund, predictable income is an overall stabilizing force. It can help you project how much you can add each month or each quarter to your fund, and also give you more financial control.
- Commit to starting now: If the idea of a freedom fund is motivating, start now. Even if you’re only in the place where you can save $25 per month or $10 per week, taking action will help you build your savings muscle and it triggers a mindset change. You believe in your own dreams and that makes it possible to forge ahead. Create a plan of what you’ll contribute each month, and consider whether you’ll add a percentage of extra funds during a high yield month to your fund.
Learning how to build financial stability as a freelancer is critical. Not only does it make a freelance career sustainable, but it helps give you options: to travel, to work on your own creative projects and to be selective about the clients you work with. A freedom fund can be a smart way to create the financial cushion you need for real flexibility in your career.