April 23, 2014

5 Budgeting Tips for Freelancers Living on an Inconsistent Income

freelance incomeEd. Note: Most freelancers don’t get holiday bonuses or annual raises, so we have to budget carefully to ensure that we have enough moola to cover holiday gifts, extra expenses for travel and other costs, and of course run-of-the-mill costs like car repairs or medical bills. I recently reviewed The Money Book for Freelancers, Part-Timers, and the Self-Employed, which covers some strategies for smoothing out the financial ups and downs of freelancing. Here’s another take on this topic. 

By Jim Vela

If you’re a blogger like I am, you already know the many benefits of a full-time freelance career. You can generally set your own hours, work when you want, how you want, where you want, and enjoy a number of other freedoms that traditional jobs don’t provide. With all the perks, however, come a few necessary evils, one of which is an inconsistent income. Unless you’re one of the select few who has significant assets to fall back on, you likely face lots of financial ups and downs. Despite the precarious nature of your freelance career, there are ways to overcome it. For some helpful guidance, read on.

  1. Create an Accurate Budget
    Your first step is to make a personal budget. Detail all of your fixed expenses, including your rent or mortgage payment, utility bills, phone, cable, transportation, and food costs. Most of these expenses are either fixed or close to it, so you can give yourself a benchmark that you know you have to meet each month. The challenging part is estimating a variable income. Either calculate your average monthly income over the course of the past year, or, to make your budget virtually bulletproof, base it off the worst month you’ve had recently. Whichever income-estimating method you use, the goal is to get your monthly spending under your income, so if it’s not there on the first draft of your budget, it’s time to cut some costs. Be sure to include a budget line for taxes, which in most cases you’re going to have to pay quarterly. Estimate your tax obligations and always set aside at least that amount as soon as your money comes in — don’t fool yourself into thinking that money belongs to you. Dealing with your expenses as a freelancer is challenging enough, you don’t want to burden yourself with the consequences of failing to pay your taxes on time.
  2. Religiously Save Money on Expenses
    You can save money on just about every expense under the sun, if you know how. Start with food costs. Clip coupons to save on your groceries and look for restaurant discounts on deal of the day websites like Groupon and LivingSocial. Request an audit from your home energy provider to discover ways to shave utility costs. You may be able to reduce your bill by more than 30 percent. Bundle monthly services like Internet, cable, and cell phone under a single plan, and you could knock $10 off each service. If you can get by without a home landline, drop it. That move could slice another $500 off your annual budget.
  3. Curb Spending
    Resist the urge to purchase the latest electronic gadget and instead keep that money in your pocket. Remember, your income is never guaranteed, so you want to establish as much of a cushion to fall back on as possible. For every big purchase you forego, that’s another handful of dollars in the bank to help you sleep easier at night. When you’re faced with a potential purchase, ask yourself if it’s something you truly need or simply something you want. Cut back on the wants as much as possible so you ensure having enough money for the things you need. Train yourself to understand the difference between the two.
  4. Limit the Celebrations
    If you have a great month, be sure to reward yourself for it, but don’t splurge. If you end with a surplus, set some of it aside for the leaner months, or use it to pay down your current debts. You could also beef up your retirement contributions or boost your emergency fund if necessary. Always feel free to spend something on yourself, but remember the importance of staying one step ahead of the financial game whenever possible.
  5. Commit to an Emergency Fund
    An emergency fund is essential for anyone with a fluctuating income. 9-to-5 workers have a steady paycheck to rely on – you don’t. Create an emergency fund so your finances aren’t thrown for a loop whenever your car breaks down or you get sick. Shoot for the recommended 12 months’ worth of living expenses as your eventual goal, and get there by contributing to it every time you earn a paycheck, even if it’s just a few dollars.

Freelancers, what budgeting tips would you add?

Jim Vela is a freelance writer who enjoys sharing his experiences and tips related to business, personal finance, frugal living, and travel.

Photo courtesy of sakhorn38 / freedigitalphotos

7 Ways to Turn Gigs You Already Have Into More Writing Income

freelance money

Ed. Note: As 2013 draws to a close, it’s time to look back over the past year and consider how to better our freelance businesses in 2014 and beyond. If you’re trying to increase your income next year, then read for tips from veteran freelancer David Geer on using the writing gigs you already have to generate more income. 

By David Geer

It is often easier to draw more income from the freelance writing assignments and projects that are already coming in than to gain new customers. Here are some tips on how to make that happen.

  1. Ask for a better contract.
    Ask for a better contract when you’re giving up too many rights without receiving additional pay, when you can’t figure out what or when you’re getting paid , or if you are an authority or have a demonstrable specialty. Ask for more money when the rights they want seem excessive such as all rights. Better contracts can also ensure you are better paid over the long haul by establishing exactly how much you are to be paid, and how and when you will be paid, in case you want to negotiate for more money or quicker payment terms or simply want to ensure that you will be paid what you agreed on together.Finally, if you are an established writer, use this to your advantage. Published rates are often for new writers whereas rates for veteran writers are seldom published since not everyone can expect to receive those rates. Ask for a better rate than is offered in the first contract you receive.  In a specific example of the latter case, I received almost double the advertised pay rate simply by asking. This happened with a technology publication I ended up writing for for many years.Just ask, “Do you have a better contract?” Let them ask you why you want it. Be prepared with an answer. They may not ask. They may ritually give better contracts only to those who ask. I have had this happen on several occasions. I think some publications respect writers for knowing enough to ask while others may want to save themselves from being reputed among established writers for dolling out bad contracts. In either case, they will give better contracts, but you have to ask. It can be as simple as that. If the contract still doesn’t measure up, negotiate further.
  2. Get reimbursed for expenses.
    If you see an expense reimbursement clause, use it. Adhere to the publication’s instructions on how they will reimburse you and what charges they will reimburse. Items they take seriously may include phone charges for interviews or research (I have read lists of acceptable reimbursements from specific publishers that include phone charges); postal mailing charges; travel expenses (discuss before signing) and costs for other goods or services vital to the assignment. Ask for a list of the kinds of charges they will reimburse . There may also be a total amount they will reimburse. Don’t forget to invoice separately. And if the publication does not reimburse for certain charges, consider taking a business expense tax deduction for those charges.
  3. Ask for a raise after four articles? Maybe not!
    In an exchange on the topic among established freelance writers on a writer forum, the consensus seemed to be that if you have turned in about four acceptable pieces without a hitch, you have just become a known quantity, a measurable asset, and you are probably worth paying more to keep. In my experience, however, that has seldom worked in actual practice.I then decided that if I expected a raise as a freelance writer, I might want to negotiate the terms and conditions under which a raise would occur and how much my pay would be raised up before I ever started writing for a publication. Otherwise, I might never see a raise. Again, in actual practice, that theory seldom held water for me either.Here’s what did work. I decided to bid the highest rate I thought I would ever get from the publisher right from the start. Once I determined an amount, I bid that. Sometimes I got the work and sometimes not. Later, as my work and relationships improved, I was able to ask for more from the start and get it. Often this was from new clients who typically paid more anyway. That was one form in which a “raise” actually came. In other cases, if people gave me a raise, they just gave it, based on my work and not based on me asking for it. That also came later in my career rather than sooner, but I would try these approaches.
  4. Pitch a follow-up or series.
    Be aware of related stories that break just as a publication is publishing your piece or thereafter. Get the story and pitch a follow-up or series, first to the same publication, then as a scoop on that publication to their competitors if they reject the idea. In your query, cite not only the first article but also its popularity by sharing reader mail. When writing the piece, compare information from the first story – this will enlarge the readership for both.
  5. Turn interviews into profiles.
    You take an interview for an assignment. You already know a lot about the person. Depending on their import, fame, or popularity, you may be able to publish their profile in a national magazine. If not, you shouldn’t find it difficult to publish in a smaller magazine (try the alumni magazine at their alma mater) or better-paying newspaper. When you write them properly, profiles stay fresh, requiring only occasional minor revisions. This is a built-in “freshness guarantee” that means you can pitch profiles endlessly until someone publishes your profile and pays you!
  6. Keep a journal as you write.
    By keeping a journal of your professional writing life, you store up a slew of material for courses on writing, or even a book! More than memoirs, you can turn these slices of your writing adventures into articles, features, fiction, or meat for your bio or query letters. Journaling is impassioned, eager writing about what you know well. You generate twice the material without doing any additional research.  Then you cherish it, learn from it and people pay you for it too!
  7. Tap into editors you know.
    Current work can lead to new customers too. On one occasion when calling an editor who I really hit it off with, I got a lead right away to write adjacent material for the editor’s friend! Another time I queried an editor who, unbeknownst to me, happened to work in a building full of editors in a publishing district. She gladly volunteered to give my information to all the other editors in the building! The lesson here is to be proactively personable with editors.

David Geer is a 13-year veteran technology writer, journalist and content producer whose work appears in numerous publications, such as CSO (Chief Security Officer). Follow David @geercom on Twitter or find him on LinkedIn

Image: Stuart Miles / FreeDigitalPhotos.net

Book Review: The Money Book for Freelancers, Part-Timers, and the Self-Employed

MoneyBookCover_FinalMost personal finance advice assumes you’re bringing home a steady paycheck so you can predict your income week to week and automate contributions to retirement or short-term savings goals. But for freelancers and others with not-so-regular jobs, it’s not so simple. We might have a $9,000 month after finishing a big project followed by a $2,000 month in which an invoice gets lost or an anticipated assignment falls through. Yet we still have to pay fixed monthly expenses like the mortgage or rent, the electric bill, and those self-paid health insurance premiums. And we know we should be saving for retirement, since there’s no employer to set up a 401(k) for us.

In their 2010 book, The Money Book for Freelancers, Part-Timers, and the Self-Employed: The Only Personal Finance System for People with Not-So-Regular Jobs, freelance journalists Joseph D’Agnese and Denise Kiernan tackle these and other challenges associated with irregular paychecks. I’ve been freelancing full-time since 2008, so it’s surprising even to me that I’m just now reading The Money Book.

Up to this point, I survived the feast or famine cycles of freelancing by maintaining a cash cushion and living well below my means (I can be pretty darn frugal at times). In fact, a few months before I left my full-time job, I completed a month-long spending fast where I only paid for the barest essentials like groceries and rent, forgoing new clothes, books, restaurant meals, lattes, and all other frills. It helped boost my cash reserves before I went out on my own and also proved that I could drastically cut back my spending if needed.

But, of course, it meant missing out on a lot of social outings and delaying purchases I otherwise would have made. I survived the month without any major cheats, but I don’t recommend a winter spending fast because the weather is already pretty brutal and there aren’t nearly as many free activities as there are in the summer months. And while spending in moderation is a good thing, freelancers especially need to get out of the house every once in awhile, which makes that $10 glass of wine or $5 latte more worthwhile.

D’Agnese and Kiernan, in contrast, take a more moderate, sustainable approach to spending and saving rather than the all-or-nothing experiment I did. Instead of cutting out all discretionary spending as I tried to do, they suggest taking a percentage of each freelance check and immediately transferring it into sub-accounts for retirement, taxes, emergency savings, everyday spending, and savings goals. They even suggest (and I love this idea) giving each account a name that gets you fired up like “Experience Fabulous New Wines Account” or “Cabin in the Woods Account.” The idea is to fund each account instead of having one big pot of money and stealing from your emergency savings to pay your taxes (umm, not that I’ve ever done that …)

I’m still tweaking the percentages but here’s my plan (that cushion mentioned above is now emergency savings rather than an all-purpose pot o’ money):

  • Tax Fund – 25%
  • Retirement* – 10%
  • Susan’s Condo Fund – 10%

*I have a SEP IRA and used to transfer one lump sum per year after my accountant ran the numbers and told me how much to contribute. But now I contribute monthly to take advantage of dollar cost averaging. The Money Book doesn’t mention DCA but it explains the ins and outs of various retirement savings vehicles for the self-employed.

The remainder is for rent and other expenses. Their plan makes a ton of sense for those with irregular paychecks, in my opinion.

Overall, I’d recommend The Money Book to newbie freelancers or more seasoned freelancers who want a better way to manage their money. I did have a few minor quibbles, though (and this is the personal finance writer in me):

  • D’Agnese and Kiernan suggest using cash to become more mindful of your spending and avoid credit card debt. That advice makes perfect sense for people who are digging themselves out of debt or can’t seem to rein in their spending. But cash and even debit cards don’t have the same protections as credit cards so if your wallet is lost or stolen you’re SOL. And cash doesn’t earn rewards points or miles. Rewards credits cards don’t make sense for people who carry a balance, since they typically carry a higher interest rate, but for people who are disciplined about paying off their balance each month and not over-spending, rewards credit cards can be useful.
  • It doesn’t mention mobile check deposits, since they weren’t as popular in 2010 when the book came out, but I think they’re a huge boon to freelancers like me who get a lot of paper checks. Instead of running to an ATM, now I can deposit checks from my phone! If there’s a new edition, I hope they’ll include information on that.
  • The book has lots of advice about cutting back on non-essential spending and understanding wants vs. needs. But while prioritizing expenses is helpful, so is making more money. Undercharging is often a bigger problem than a Starbucks habit. Unlike salaried employees who typically have to wait for a promotion or annual review to make more money, freelancers have a lot more control over their income. The second to last chapter includes basic tips on asking for what you’re worth and building client relationships, but that information is so fundamental to freelancing, I would have liked seeing it earlier in the book and in more depth.

Setting Your Freelance Writing Rates

Writing Your Way OutEd. note: this is an excerpt of Write Your Way Out of the Rat Race…And Step Into a Career You Love, an e-book by Linda Formichelli that launches today. 

Before you jump into a writing career, you need to be absolutely clear that you are writing for money. You want to leave the rat race, and you need to earn a good income from your writing in order to do so.

Too many writers feel that because they’re new to the game, they need to underprice themselves. Then they get stuck in the limbo of $5 articles, penny-per-word blog posts, and “free sample” case studies—and can’t climb out.

So the question is: How much should you expect for your writing?

Not an easy question to answer. But one thing I can tell you for sure is you should not base your pricing on what other writers charge or what you think the client can afford.

Figure out how much you need to make per year to pay your bills and make a profit that’s acceptable to you. Calculate how many billable hours you’ll be working per year and how much you’ll need to charge per hour to make it work. That number is different for every freelancer.

This is a very simplistic formula. For more detail on setting your prices, download Erik Sherman’s free e-book Planning a Writing Business.

But that’s not the only way to price your writing services. You know what I do when someone asks me for a price? I make one up that feels good to me. (And typically that comes out to $250 per hour.)

I always felt like a slacker doing that, until I read Your Right Price, a free e-book by Mark Silver. He discusses heart-centered pricing, which is basically using your heart and your intuition to determine the right price for you.

Think Hourly

Magazines and online publications typically pay by the word (for example, 50 cents per word), but it’s smart to figure out how much you make per hour with each client. You’ll sometimes find that the $2.00/word client ends up paying you less per hour than the $.50/word client, because the higher-paying client is more of a pain in the butt to work for and requires multiple revisions.

As for copywriting and other forms of writing where you charge by the project, don’t make the mistake of revealing your hourly rate to clients. This opens up an opportunity for the client to micromanage you in order to get the number of hours down, and to question the speed of your writing. (Also, more experienced writers write faster—and why should they be penalized for that?)

Instead, estimate how many hours the project will take, pad it a bit to make sure you’re covered, factor in a couple rounds of edits and revisions, multiply this by your target hourly rate, and quote a project price to the client. (Or do what I do and go with your gut on pricing!)

You Can’t Please ‘Em All

No matter what price you choose, you will lose out on clients who can’t afford you.

That’s okay.

I promise, there are plenty of clients who can pay what you want. So if you set your price at $80 per hour, you will find clients who can pay that, and those who can only budget for $40 per hour will take a pass. If you charge $100 per hour, you’ll miss out on clients who can only pay $80 per hour, but you’ll find yourself getting assignments from that higher tier of clients.

Of course, you must offer enough value to the client to make your price worth it to them. But that said, you don’t need to mold your price strategy to what you think a particular client can afford. That’s a sure route to driving yourself crazy as you try to guess what the client wants to pay.

Linda Formichelli has written for close to 150 magazines since 1997—including Redbook, USA Weekend, Writer’s Digest, Inc., andFitness—and more than two dozen copywriting and content marketing clients. Today (October 10) at 12 pm EDT, Linda is launching her e-book Write Your Way Out of the Rat Race…And Step Into a Career You Love, which will help you leave the 9-5 to pursue the career of your dreams. Click on the link to be the first to know about the limited-time low-price offer Linda has in store!