Basics of Financial Literacy for Freelancers

A typical problem for freelancers is when the client hasn't paid for the order yet, but you need to pay for the apartment, go out for food, or cover other expenses, but there is no money. We tell you how to avoid this situation.

Everyone understands that freelancing is an unstable job, especially at the beginning. But for some reason, not everyone understands that you need to forecast your financial resources. As a result, it turns out that you have to take on all the orders that come in and don’t always like them, just to get money.

And it also happens that in one month there were a lot of orders and you managed to earn decent money, and in the second everything went wrong, but you have already spent the money. And in order to avoid such situations, you need to know the basics of financial literacy. Even if you use services like Norman, which automate the accounting of your taxes, etc.

Rule #1. You need to know and plan your expenses

It is important to calculate how much money you need to cover your minimum needs (rent, utilities, food, entertainment, etc.), but still feel comfortable. To do this, write down all the typical expense items that are repeated from month to month.

Why do you need this? The resulting amount is equal to your minimum income level. That is, if your expenses are $1,000 per month, then you need to earn at least (!) $1,000 per month, but more is better.

Rule #2. Plan your income

You need to start by analyzing your sources of income and the cost of your services. For example, you are new to web design and currently only offer landing page creation. The cost of your services is $300 per site. To reach at least $900 per month in income, you need to create 3 landing pages.

Then it is important to think about where you will take orders and look for customers. At the beginning, it is normal to be a little lost in this matter, but over time you need to build a system for attracting clients. One of the channels can be a working page on social networks, which we talked about in this article.

It is important not to be afraid to send dozens or hundreds of commercial offers, considering that out of 20 people, 5 may respond and 1-2 may use your services.

Rule #3. Save money to have a financial cushion

Spending all your money at 0% is a very bad habit when freelancing. Additional sources of income, increasing the cost of services, and eliminating some expenses will help you get rid of it.

A financial cushion is the amount of money saved up that allows you to:

• be confident in the future;
• calmly survive periods of lack of order flow;
• easily go on vacation, be out of work, or travel for a couple of months;
• have start-up capital for your business, investments;
• afford expensive purchases in the future, etc.

Where to start creating a financial cushion? Again, we return to calculating the monthly budget for a comfortable life. Now we multiply this amount by at least 3, but better by 6. This is how much you need to earn to have a financial cushion. It is advisable to create it within a year.

Where to get money to save up the required amount? The simplest principle is to put aside 10-20% of your income for each order. If it is difficult to measure in percentage terms, calculate how much money you need to put aside per week and try not to deviate from the required amount.

Rule #4. Try not to borrow and do without credits

Of course, situations are different, and sometimes you need something urgently, but there is not enough money. But if you listen to rule #3, you will not have such a problem.

What is the danger of debt? This is the easiest way to quickly get the required amount of money. You have not earned it yet, but you have already taken it and spent it. The brain gets used to the thought, “Why bother, try to find new sources of income, increase your level of expertise, if you can get money so easily?” And this is dangerous.

Rule #5. Always take an advance payment

Even if you are a newbie. Even if it is your first order. Even if the client is a friend or colleague.

A reasonable customer understands the importance of an advance payment and will not refuse. And if a potential client tries to persuade you to pay after the fact, do not agree. They come to you for services, and only you decide under what conditions you will provide them.

As an advance payment, you can first take 30%, then 50%, and then all 100% of the project cost.

Rule #6. Invest part of your income

Where? Start with yourself. Invest in education to constantly develop and become better, and in restoring resources to always have the strength to achieve your goals. You can also invest in your projects.

Rule #7. Try not to lend money

This often spoils the relationship with the person you lent money to. Because sometimes you agree on a specific date for the return of funds, and the debtor has not yet had time to find them, earn them. As a result, he pays off the debt for months, years.

How is this dangerous for you? This is a strong stagnation of money. You could use them for investments, a financial cushion, or other expenses, but they just seem to be hanging. And it is not a fact that they will give them back to you.

Rule #8. Set financial goals

Often they motivate you to work even better, even more efficiently, to find interesting solutions.

What is included in the concept of financial goals:

• buying your own home;
• buying a car;
• purchase of expensive equipment (preferably for work that can be recouped by it);
• reaching a new level of earnings;
• vacation in the country of dreams, etc.

It is important to write down goals according to the SMART system, that they are specific, measurable, achievable, relevant, and limited in time.

What we described above are abstract goals; they need to be specified for yourself. Otherwise, you will go to them for a very long time.

Conclusion

In fact, being financially literate is not difficult. The main thing is to understand your expenses and income, sources of money, ways of earning it, and how to manage it.