How not to be skint when freelancing

coins and note

At a recent freelancing workshop someone asked a great question. “How can I avoid being skint in winter when there’s no work?”

This simple question goes to the heart of good financial management when you’re freelancing. You know people want your skills, but you also know there are times of the year when it’s just not going to happen.

For freelance production people the lean months will vary, depending on your area of work. January is often pretty dead for many. (For my training business it’s August and half of December.)

The short answer is to keep back money in the months when you earn it, covering the months when you don’t. But how do you know how much to put aside?

The posh name for this is cash flow planning, and it doesn’t have to be scary.

A 5-point plan for not running out of moneyOpen cash box

  1. Work out how much you spend on your personal life – from rent/mortgage to food, car, eating out, Spotify etc.. The best way is to do a spending diary for a few weeks, and just write down everything you spend. Do it as you go along otherwise you’ll forget the small things like coffees and beers.
  1. Translate this information into a list of monthly budget targets using broad categories, such as “food”, “eating out”, “gas/electricity/water”, “travel”. Don’t forget hobbies and pastimes that are important to you.
    It’s a good idea to list these monthly budgets in two types: costs that don’t change (rent, utilities, Netflix…); and ad hoc costs (like food, petrol, clothing…) that are not fixed.
  1. Now look at the income side of things. If you’ve been freelancing for a while, look back over the last months or years and check how much you were able to earn in each month. Jot down the typical monthly amount when you’re earning. Make a note of months where you will earn nothing or very little.

If you’re just starting out as a freelancer, make sure you find out what the typical rates of pay are for your line of work. Use that information along with the typical number of days or weeks you think you might be able to secure work. 

People in your network of freelancers should be able to help you with an estimate for some of these figures if you’re new to all this.

  1. Collect all the information and plot the income and spending budgets for each of the next twelve months in round figures. The easiest way to do this is put the rough budgets for income and expense in a spreadsheet designed for the purpose.

Don’t panic if spreadsheets are not your thing.  I’ve set up a simple one which you can use. Take a look here:
Simplified cash flow sheet for freelancers >

What you’re aiming to do is plot the income figure and a spending figure for each month. One minus the other gives you what cash you’ll have left at the end of that month.

Some months will have zero income, but there will always be spending. So the total for that month will be a negative figure. At the very least this will be for the food on the table and the roof over your head!

  1. Finally, tot up the total amount of money at the end of each earning month, and see whether it’s more or less than the total at the end of the months when you’re not earning.  The aim is to tweak the budget targets to make sure your ‘in pocket’ months bring in enough money to cover the ‘I’m skint’ months.

In spreadsheet-speak this vital information is contained in the line at the bottom, which is called the ‘balance carried forward’. 

The only challenge then is to make sure you stick to your budgets.

It’s very tempting to spend money when you have it. But some of that money is ear-marked for later, and cash flow planning is a way of identifying it clearly.

So put it somewhere where you won’t touch it, like a separate bank account.

You can’t predict the future, but…

I’m often asked how you can know what you might earn later in the year. But that’s not really the point of cash flow planning.

You can’t know, but budgeting is a way of setting yourself a target. Even if your target is modest, if you exceed it by a couple of pounds you’ll feel like a million dollars.

And the good news is your predictions get more accurate with each passing year. You’ll get to the point of knowing at Christmas time what sort of summer holiday you’ll be able to afford.

And that’s not just a numbers game. That’s real life.

Posted on 01 October 2018

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