Freelancing has grown enormously in recent years. From the disruptive impact of the COVID-19 pandemic to the burgeoning creator economy and the rapid advancements in enabling technologies, more individuals than ever before are opting to work for themselves rather than traditional employers.
According to the latest data from the World Bank, the global self-employment population has surged to approximately 1.57 billion people. This staggering figure accounts for nearly half (46.6%) of the entire worldwide workforce, underscoring the sheer scale of the freelance revolution taking place.
There are many reasons people go freelancing; from the flexible working hours to escaping traditional corporate structures. However, we also knew, this professional domain comes with so many challenges, and one of them is money management.
When financing daily necessities with a fixed income, proper money management is crucial, as the task can quickly become uneasy. However, the challenge escalates to a more dire situation when having to pay bills with an uncertain income stream.
Challenges of managing cash flow and expenses in the early stages of a freelance career
I was lucky; when I started my freelancing career, it only took me a month to land a new gig as a freelance content writer for a content writing agency. But some of my friends did face so many financial problems in their early stages of a freelance career.
In the early stages of a freelancing career, landing a project can be a hurdle. As a new freelancer, it can be difficult to convince potential clients to choose you over more experienced freelancers. It is also difficult for new freelancers to find their first clients, without prior industry experience or an established professional network. And even if you have the network, or perhaps some experience, you may face difficulty determining the right pricing and articulating the unique value proposition. Thus, it is important for novice freelancers to have smart financial strategies and planning during their onboarding period.
Financial strategies for nascent freelancing career
Disclaimer: The tips I've provided here are based on my own experience as a freelancer, and are not meant to substitute professional financial advice. It is always advisable to seek guidance from qualified financial professionals, such as accountants or financial advisors, to ensure proper financial planning and management for your freelancing career.
In hindsight of my ten-years experience in the freelancing world, I think some of the strategies below can help a freelancer face challenges in financial matters.
#1. Get a side gig or part time job
If you’re currently starting your freelancing job while you’re still working, please, don’t ever leave it, before you have a strong portfolio that can convince your prospective clients. Building portfolio, professional network, and reputation often takes time. So, it is best to find a job that will help you provide a more steady income.
But if you start this job field from scratch, I suggest you find some side gig or a part time job to help you build a steady income stream. You can choose to assist some senior freelancers with your expertise. Or you can find side gig options in retail or customer service, tutoring or teaching, virtual assistant, product sales, and so on.
You can benefit not only from financial stability, but also from the immediate pressure to generate all living expenses from freelance work alone. This can alleviate stress and allow the freelancer to focus on building their skills, portfolio, and client relationships.
You can also use this chance to learn how to manage your time when you have two or more projects in your hands.
#2. Reduce expense and prioritize
There are no better rules to reduce expenses unless you track your spending meticulously. Yes, no one loves tracking their expenses, especially those small ones. But unfortunately, these expenses, which we call "small," often become the biggest loss of your expenses.
You can take Chris Bailey's way (author of the Productivity Project book) when he doesn’t like doing his taxes. He will go to a cafe or a place he loves to do his boring and uninteresting tasks.
Another way, is to use app expense management, which you can use in seconds after you make a purchase.
Having a meticulous track expenses will identify areas to cut back on non-essential expenses and focus on only the most critical expenses
#3. Negotiate payment terms
When starting out as a freelancer, it's important to be cautious of potential scam projects that could result in losses of time or money. One effective way to protect yourself is to thoroughly research the company's or marketplace's reputation before accepting a job.
Another key strategy is to negotiate upfront deposits or partial payments from clients. Yes, it can be a challenging conversation to have, especially if you're concerned about losing opportunities. However, requesting an upfront payment can significantly improve your cash flow management, instead of waiting for full invoices.
If you're unsure how to approach this topic with clients, consider joining a freelancer marketplace that requires the client to deposit a partial payment before the work begins. For example, platforms like Upwork have built-in mechanisms to protect freelancers by holding a portion of the payment until the project is completed.
Negotiating favorable payment terms is an essential skill for freelancers. By securing upfront deposits or partial payments, you can alleviate the risks of non-payment and ensure a more stable cash flow to support your business. Although it may feel uncomfortable at first, this proactive approach can make a significant difference in the financial health and sustainability of your freelance career.
Bonus tips
After you start to make money as a freelancer, don't forget to take the following important steps:
1. Set aside some of your income to build an emergency fund of 3-6 months' worth of expenses. This will provide a financial cushion to help you weather unexpected events or periods of reduced work.
If you need more details on how to build emergency funds, you can check "Effective Strategies to Build emergencies Fund for FreelancersEffective Strategies to Build emergencies Fund for Freelancers"
2. Register for health insurance to help reduce the risk of increasing health costs. It would be better to register with a government insurance plan, as the premiums are often more affordable, while still providing comprehensive coverage.
3. Access available government support, such as grants, subsidies, or financial assistance programs. Additionally, take advantage of any tax credits, deductions, or payment plans that you may be eligible for.
We all know the weight of financial challenges when starting a freelance business. Therefore, it is crucial to have a clear financial strategy and plan in place to help you survive before landing your very first project.
In the end, don't forget to always actively build professional relationships and generate referrals and repeat business opportunities. These steps will contribute to the long-term success and stability of your freelance career. I hope these tips help you build a solid financial foundation for your freelance business.
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