Going from a steady paycheck to a freelance income can be a big adjustment, especially if you are leaving behind a substantial corporate salary with full benefits. But, contrary to what many people assume, it’s possible to end up on better financial footing as a freelancer than as an employee. Though trial and error, I discovered that these strategies worked for me and my family.
1. Live like you earn 30% to 40% less than you really do. This is really hard to do, but it will put you in a position of power, not desperation, as you build your business. It’s also a necessity, if you want to save for retirement, buy health insurance despite climbing costs, and have a financial cushion for periods of slow cash flow.
There’s one other benefit: It’ll give you independence. You will enjoy freelancing a lot more if you are able to politely say no to projects you really don’t want to do or have the freedom to “fire” a bad client.
2. At the same time, don’t be a miser. It will be hard to stick with freelancing if it means you and your loves ones have to give up everything you enjoy to make ends meet. My husband and I have four little kids, so there are always financial demands to juggle. What works for us best is spending money on the things we value the most, and finding ways to save on things we don’t really care about. For instance, we like our children to be able to participate in sports and arts events they enjoy and to donate to certain charities, so we include that stuff in our budget.
I free up extra cash by looking for quick, simple ways to save on boring, recurring purchases. There are a few items I autoship from Amazon and a fairly long list of things, like diapers, that we buy at Target using a Red Card, which saves us 5% on those purchases. I view my time as my currency, so I don’t like to invest a huge amount of it in researching purchases to find a better price, unless we’re buying something major.
I also try to avoid recreational shopping. If I’m tempted to spend on impulse, I can often stop myself from making a purchase by asking: Is this pair of shoes worth taking three hours away from my kids this weekend to tackle an extra editing job? Sometimes, I truly do need to buy something new, but often, the answer is no. Sometimes, if I feel the urge for some retail therapy, I can divert myself by purchasing something that’s on my to-do list, like the gifts for the birthday parties my children are going to attend that month.
3. Give careful thought to where you live. Cities can be a great place for creative freelancers, because of the abundance of potential clients and large communities of other indie workers. However, if you have children, urban areas can be expensive, unless the public schools are a good fit for your children. My husband and I moved from a townhouse just outside of Manhattan to a nearby suburb with great schools about two years ago, after calculating how much additional income we would have to earn to send our kids to private school every year. It’s a huge relief to know we don’t have to pay tuition and we don’t have to enter a lottery to get our children into a charter school. (Although we tried home schooling for a year–and enjoyed it–it was hard to manage it on top of working.)
But the suburbs come with their own costs. For instance, it is hard to find a place to rent in some towns; you have to buy a house to live there, for the most part. As a freelancer, that’s not always easy in today’s mortgage climate.
4. Live your own life. When you’re getting established as a freelancer, it can be difficult to hear corporate friends talking about how they’re going on three-week paid vacations this year when you’ve decided to simply take a long weekend away. It’s not fun to opt out of certain ways you might have socialized before, whether it was golf, skiing or spa days, so you can reinvest in your business. That’s when it’ll hit you that you haven’t just made a career switch. You’ve changed your entire lifestyle, with all of the trade-offs that entails.
I can’t say I’ve found a way to stop yearning for paid vacations. My husband is a freelancer, too. But I have found that getting to know other self-employed people and hearing about their challenges has made it easier to bear some of the harder parts of freelancing. And, after four years of taking long weekends instead of a full-week or two off, I’m hoping a freelancing buddy will help me figure out how to pull off a longer getaway. Meanwhile, I keep reminding myself that if I had all of the corporate benefits I once had, I wouldn’t have the freedom to plant lilies of the valley at lunch time with my kids on a beautiful spring day. I’d be sitting around a conference room table somewhere.
How have you managed the financial challenges of freelancing? Tell us in the comment area.