Do you want to be a successful freelancer? One of the critical skills you will need is money management. Not only do you need to maintain the books and records of each of your side gigs (use my tips on how to do your own bookkeeping), you need to be able to stay on top of your personal finances as well. It takes a lot of time to build up a steady flow of income as a freelancer, and that requires a lot of discipline with your money. So before you start to launch into a freelancing career, start out by setting specific personal finance goals for yourself first.
I strongly believe in brainstorming, planning, preparing, setting targets, and following through in order to succeed. Otherwise, without prep work and goals it’s hard to know where you’re going and it’s way too easy to get lazy and stagnate. I’m totally guilty of this myself at times. For example, about two years ago, I set a goal to write my first ebook. And you know what? I totally failed! Why? Because I didn’t plan, and I got distracted with too many other things. What I should have done was set a SMARTER goal so I’d be able to stay disciplined and follow through. If you want to be able to walk away from a traditional corporate job in order to become a full time freelancer, you must set goals and stick to them.
Get Into The Specifics And Follow Through
Personal finance goals for freelancers need to be specific with concrete numbers. Don’t tell yourself, “I want to save more money.” Instead, consider saying, “I want to save 20% of my after-tax income, which equals $12,000 a year in the bank.” And instead of declaring, “I want to increase revenue this month,” say “I want to grow revenue by 50% to $5,000 by the end of November.”
Concrete goals have a much higher success rate than vague goals, and they are also tangible. We all want to make more money, increase our net worth, and enhance our lifestyle. Utilizing personal finance goals will help you become a thriving freelancer and a happier person in the process. Assign values to your financial goals and execute them with purpose.
Once you set SMARTER goals, don’t forget to keep yourself accountable over time and analyze your progress. Without follow through you’re way too likely to run into issues. Even if I had set super specific targets for writing my ebook, I still would have failed if I didn’t actually execute each of the steps and checked my progress against my target timeline. Having as long a runway as possible is key to surviving as a freelancer, so start paying very close attention to your cash flow and never stop building your network.
5 Personal Finance Goals For Freelancers
1) Save money until it becomes uncomfortable. I like to say that if you aren’t at least a little bit uncomfortable with how much money you’re saving, you aren’t saving enough. Set a goal to increase your savings rate by 1% a month every month until it starts to get stressful. Budgets aren’t supposed to be a walk in the park.
Also, take a look at all of your passive income streams. If you don’t have any, then you need to start generating some now. Maybe you can tutor local kids in your favorite subject or coach an intramural sports team. Or perhaps you can do some consulting or sell some of your assets on the side to boost up your savings. Keep such income streams separate from your freelancing income streams. The reason you should compartmentalize is because entrepreneurs need a safety fund more than anyone. The name of the game is survival. If you can survive, you can grow. If you can grow, you might be able to get incredibly wealthy!
2) Stop losing money already. This may be a silly sounding goal, but you’d be surprised how many people lose a lot of money in their investments and in their companies! It takes a 100% increase to get back to even if you lose 50% of your money. It’s much better for your health to steadily gain 8% a year vs. losing 20% one year and gaining 35% the next year. As you are building your business, make sure your investments are congruent with your risk tolerance. I recommend turning the risk dial way down by looking at structured notes that provide downside protection, short-term CDs, or even online savings accounts. Run different investment return scenarios to get a realistic picture of what you could gain. The last thing you want to do is have your company go belly up and have your investments disappear as well.
3) Identify a benchmark to measure performance. Growth for growth’s sake is a waste of time. It’s important to identify a target that keeps you focused. The target can either be a competitor, or an index such as the NASDAQ, or mobile handset growth rates if you have a mobile device company. Make sure you identify sticky revenue streams. In other words, clients that will pay you over and over again for the long run. Focus on the scaleability of your business and not one time profits. Those who focus on one time profit opportunities are going to burn themselves out. By selecting an anchor to base your growth, you will be more focused on your businesses revenue and profitability.
4) Create a target value for your business. Another one of my personal finance goals for freelancers that you shouldn’t over look is to come up with some type of value target for your business. It can be based off revenue, operating profits, or net profits. Do some research and see what the acquired companies in your space have sold for. Ping buyers on what type of metrics they are using to value a potential purchase. If companies in your space are being valued by revenue, then go after market share. If profits are at a premium, then focus on margins.
5) Minimize taxes paid. It takes effort to minimize your tax bill, just like it takes effort to save and make more money. The government is counting on you to roll over and die. If you are paying more in taxes than you are saving a year, the government is screwing you. Max out your 401K and IRA or start a self-employed 401K and shovel as much money in there as possible. Take advantage of the mortgage interest shield. Relocate to tax friendlier states. Maximize your business expenses by studying what is generally expensable. There is a difference between net profit and cash flow. Learn how to optimize your business to reduce your tax liability.
Simplify Your Own Personal Finances So You Can Focus On Your Business
Utilize Free Financial Tools To Grow Your Wealth – It’s important to take a proactive approach to your finances while you’re busy building your business. I keep track of my finances with Personal Capital, a free online wealth management software platform of financial tools. Personal Capital monitors my spending, charts my net worth progress, highlights where I’m spending too much in 401K fees, and provides an overall snapshot of my entire financial well-being. As a result, I don’t have to manually track my finances anymore, or worry whether I’m overspending.
My number one goal as a freelancer and part-time entrepreneur is to help others, expand my skill sets, and share my experiences and knowledge along the way. The more I network and grow, while also monitoring and minimizing expenses, the more profitable I will become. Unfortunately, most entrepreneurs fail or give up due to various reasons. It’s hard to be self employed and you don’t want to quit your job and die alone! As a result, we need to separate our finances so that in case of failure, we still have enough of our finances intact to continue the battle.
Start Your Profitable Website Today
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I’ve been blogging since 2010 and it has allowed me to break free from the corporate grind to travel, work from home, consult for companies that I like, and do so many more things I’ve always wanted to do but couldn’t. The income is relatively passive as posts I’ve written years ago are still being found through Google and generating income. What’s better than making passive income and creating a valuable asset you can one day sell for a multiple of annual income? There’s not a week that goes by where I’m not thankful for starting this site!
Updated for 2016 and beyond
I do freelancing on the side, and I’m thinking of doing it full time sooner or later. I never thought much about #1, but it’s probably a good way to save more money. Freelancing income is sometimes unpredicted, so I also agree that it’s a good strategy to have other income streams.
I’d like to freelance full time some day myself too. It’s definitely becoming more common as companies are hiring more contractors versus employees and being super picky about who they choose to hire full time.