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Managing money for freelancers

Saturday, 11 January, 2014

Happy New Year, beloved blog readers! Thank you for persevering with me—especially through the long periods of silence. Now that Christmas and New Year's are over and life is sliding into the new “normal”, I am keen to return to blogging semi-regularly and have started lining up ideas for future posts.

Today's post is about money again—a perennial topic on this blog, if you haven't noticed as I try to find ways to become more informed and less ignorant about money and how to handle it. As my actuary friend says, it's amazing we don't get taught more about money and how to handle it while we are young, given how much we use it in the day-to-day. Even this Berenstein Bears book we bought Astrid for Christmas doesn't really help with the whole “managing” side of money. (Plus its final solution has to do with checkbooks and who uses a checkbook anymore?!)

I started realising that a significant bulk of what I had been taught about money was largely theological—the theology of wealth and materialism, generosity and giving to Christian ministry. I'm not saying that that's a bad thing: as a Christian, having a good theology of money is a pretty useful and grounding thing (and if you're keen to explore what the Bible says about wealth, I highly recommend Tony Payne's Cash Values and Brian Rosner's Beyond Greed, which really cover the basics). And it's fair enough that churches and other Christian groups don't teach you how to manage money because they're more focused on helping you grow as a Christian instead of helping you grow in material assets.

However, if my parents didn't teach me about money, my school didn't teach me about money and my church didn't teach me about money, where am I going to learn about it?

One place I have been learning is Big Hearted Business—Clare Bowditch's side project that aims to teach creative people business skills and business people creativity. (I supported her Pozible campaign to get the enterprise started.) Every Friday they release these 15-20-minute “inspiration bombs” on their YouTube channel in which (mostly) creative entrepreneurs are interviewed about their careers and how they got there. There was one recently by Luna Jaffe that I found quite interesting because she's both an artist and a certified financial planner and she works closely with creative people, trying to help them develop business skills.

Around three minutes into her 15-minute talk, she says:

The biggest challenges that I see creative people have—especially entrepreneurs have—with money is that if they think that if they don't address it—if they ignore it—there's some place in them that has this magical thinking—that somehow it will just be okay—and they don't recognise that it's a skillset—that we don't expect ourselves to sit down at the piano and play like a master, but why do we expect ourselves to be able to sit down with money and be good at it without practising?

I know that that is a small and somewhat obvious thing, but it made me feel a whole lot better about my ignorance about money—that I wasn't alone in it and that it's just a matter of practising to get better at managing it.

When I say “managing money”, however, I am thinking of something very specific: how to keep things ticking along when you're operating on a freelance income. If you Google advice on managing money (and I confess I have), you'll find that most of it is directed towards people who are on a regular income—who get paid pretty much the same amount at the same time of the month year in, year out. Most of that advice concentrates on stuff like analysing your spending, setting budgets, keeping to budgets, figuring out your fixed expenses ahead of time, setting up scheduled transfers that kick in around the time you get paid to funnel money to where it needs to go, and so on. And that's all good and sensible advice.

However, if you're freelance (which most creative entrepeneurs are), you will never be paid the same amount, you will never be paid at the same time of the month (if you get paid at all; some people are very slack or deceitful about paying their freelancers), and while there may be periods when the cash is just pouring in, there will also be dry spells—perhaps quite long—when you have to rely on your existing resources to tide you over. (This is why freelancer rates are so high, by the way: they have to account for the times when the work isn't coming in.) As a freelancer, your biggest problem is always going to be cashflow. How do you manage that? How can you even plan for the future and expand your financial resources when it feels like you're just living hand to mouth, paycheck to paycheck?

Most of the people I talked to couldn't help me solve this problem. Googling wasn't much help either. Fortunately, my actuary friend had some helpful recommendations—recommendations that seem quite simple in hindsight, but I guess it's just one of those things that when someone else says it, it's like the proverbial light switching on in the dark cellar of your brain. He said:

Simple, right? Yet so so very helpful!

Two things to add:

Of course, all this requires watching your bank balances quite carefully. We've found that our automatic transfers for things like giving to church or to support missionaries have to be adjusted occasionally because sometimes the money simply hasn't reached our main everyday account yet. I've been using internet banking a lot to monitor this sort of stuff, and I discovered a way to get it to email me the bank balance of our main account once a week so that I know roughly when the money comes in so that I can put it where it needs to go.

Okay, time to wrap this post up. If you have any other tips about how to manage money on a freelance income, I'd love to hear from you so please post a comment.

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