Freelancing Comes With Independence, and a Different Set of Rules to Live by
A Sense for Money
Being a freelancer comes with independence, flexibility and being your own boss. At the same time, you will lose the security of having a steady income. We explain what becoming a freelancer means in terms of your financial situation.
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I work as a freelancer and do not earn a regular monthly salary so should I manage my money differently from those who earn a regular monthly salary and apply the usual method of putting aside a percentage each month?
The percentage of earnings approach is a good discipline and makes sense for all, whether you are freelance or whether you have been in the same job for 40 years. If a freelancer’s chosen percentage is 15 percent, then he would set aside 15 percent of whatever he earns, come rain come shine. That would mean 15 percent of nothing if there is a month’s break, or 15 percent of a lot if a paycheck for a big assignment just came arrived.
Saving only in good times, such as when you are in the middle of a good earnings run is fraught with dangers. For example when you’ve just had a bumper period and earned a wad of cash, it will be tempting to reward yourself with a lavish holiday, or a new car, and you may end up saving nothing from your harvest. Also, when you are in the midst of a good spell, you are likely to be busy and won’t have the time to look for the right investment, so your earnings may just go to your current account and be eaten up by those comfort credit card purchases — meals, clothes and handbags which are so quick and easy to sign for but mount up very quickly.
So no doubt that the fixed percentage approach makes sense for all. The difference between a freelancer and the steady earner is how you invest your 15 percent. As a freelancer you may not wish to commit to a monthly savings policy with a premium of, say, $1000 per month. That sort of commitment could make things difficult if you have a few lean months of income, and the last thing you want to do is have to cancel the savings policy, as there are often big penalties for early lapse or surrender.
The investment choices for freelancers are likely to be somewhat different. They may wish to put 15 percent of their income into a separate current bank account (think of it as a sort of tax) and then invest that cash each time it reaches a certain threshold. The investments would be more of a lump sum nature: investments in the stock market, mutual funds or single premium top ups to a small regular savings plan. The essential point being that you are avoiding large monthly contractual commitments that could come back to bite you in lean times.
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