By Hetvi Shah
The gig economy is growing day by day. Freelancing is not only a medium to earn, but is becoming a full-time profession for many. While money may not be the source of happiness, but is critical for survival in the world.
“The person who doesn’t know where his next dollar is coming from usually doesn’t know where his last dollar went.”
Money management is a skill that many lack these days. Whether it is work-related or generally in life, it is necessary to ace financial planning and management. You may not want to enter the race of earning money, but you might frequently find yourself stressing over money-related things.
For a freelancer, being a one-man army, they have to deal with budgeting, debts, payments, expenses, investment, insurance claims, cash-flows, pricing, revenue model, and whatnot. From managing personal finances to worry about timely client payments, it is a recurring cycle.
The only way to proceed further is with a better understanding and tips to handle your wealth. When you start taking things into your hands, the instability of payments or uncertainty of the job will no longer worry you. The idea is to address the factors that cause you financial stress to eventually lead you to financial stability.
In this article, we explore various techniques for beneficial financial management for a freelancer’s growth and sustainment.
1. Prepare a cash flow
Pre-planning your next month’s cash inflow in advance helps you get things in perspective. It is recommended that you carefully predict the timing and the source(s) of your future cash in advance.
Doing this will allow you to know whether you will have sufficient, surplus, or deficiency of cash amount in the future. Knowing this, you will be able to take adequate measures to handle the forthcoming situation. The key is to strive for the best cash flow position, but also be prepared for bad times.
2. Plan your payments in advance
Mark all major payments in advance. Ask yourself, which ones are important and which ones can be delayed. This will enable you to understand the requirements of your business; when you need to introduce fresh capital and when there is idle cash available. Just like with your health, keep an eye on your financial health by doing routine checkups.
Start by mapping the day-to-day payments of the business. This will help you to understand what is the minimum cash required to run your business and which expenses can be scrapped out. After this, you can allocate funds to various functions (marketing, logistics, petty expenses, etc.) and prevent yourself from overspending.
3. Be prepared for crisis
A crisis doesn’t announce itself before arriving. However, it does not mean that one cannot prepare for and even prevent it, to some extent. Prepare a crisis management plan in the early stages of your business. It will protect you from going out of business or taking debt during tough times. You can also create a contingency fund. It can be your biggest savior during a business crisis. This is a lump sum amount that should be kept aside and used only as a last resort measure. Using these measures can shield your business from various perils in the long run.
4. Select your clients precisely
Customers are the most important aspect of any business. From small sales to repeat sales, clients are your ultimate source of money. Ensuring regular and timely payments from them is crucial for your business as a lack of payments might lead to a liquidity crunch.
In order to achieve this, negotiate your contracts well in advance. State your terms clearly. Filter clients based on certain criteria; check their payment history. You don’t want to get involved with a client who is irregular with her/his payments. You should also diversify your client base. Depending too much on similar types of clients for work may leave you vulnerable in times of distress. Broadening your scope reduces the risk of a drastic fall in business.
5. Review your strategies
In today’s world, change is the only constant. To keep up with the fast-paced business environment, you need to constantly review and renew your business as per the requirements. Identify which aspects of your business aren’t doing well; take steps to improve them. These steps may include cutting costs on certain operations or terminating business with a client. The key is to look for streams that are not cost-efficient or stagnant; find innovative methods to improve upon these areas.
As a full-time freelancer, managing time and resources, and dealing with unpredictable income is unavoidable. However, risk and worries can be mitigated by individually looking at your finances and overcoming the financial hurdles. Along with the above-mentioned points, these are the few things that one can do to successfully live your dream of working as a freelancer.
- Track your income – It is essential to record your income to get a better insight into your career graph. Maintain a spreadsheet of your earnings to deal with the fluctuating freelancing career.
- Think twice about your expenses – Monitoring your spending is really crucial. While you may be able to deal with your fixed expenses like rent and taxes, however, the challenge here is to be in control of your flexible expenses. Maintain a record and cut down on unnecessary expenses.
- Plan a budget for yourself – Budgeting is the way to financial stability. Plan and manage your personal as well as professional finances. Your post-tax income is recommended to be utilized in a 50/30/20 method. It’s a simple rule to allocate 50% of it for necessities, 30% for flexible income, and 20% go into your savings.
We can not avoid financial literacy. When in hand, money may or may not give you joy, but will surely cause pain in its absence. In conclusion, it can be said for any business, positive cash flow, timely payments, and contingency funds are essential to have.
We know that the perks of being a freelancer are too rewarding and therefore, do not let the struggle of managing your finances be an obstacle. With smart financial planning, you can literally enjoy the freedom of stress as a freelancer.
Hetvi works as a Product Associate at Refrens.com – India’s most powerful platform for freelancer’s finances and growth. She has worked for some renowned companies as a Brand and Digital marketing associate.
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