Are you earning money as a freelance writer (or do you wish you were a working writer?!). These tips for managing an unpredictable cash flow will reduce stress and bring peace to your financial life — whether you’re an aspiring or an experienced freelance writer.
Before the tips, a quip!
“Writing is turning one’s worst moments into money,” said Irish American author J. P. Donleavy.
The more you can turn your life into writing fodder, the happier and wealthier you’ll be as a writer (but, you do risk offending your loved ones). To learn how the mega-successful freelancer Bob Bly earns a living writing, read Secrets of a Freelance Writer: How to Make $100,000 a Year or More. And, here are six tips for managing finances for freelancers…
Writing for Money – Managing an Unpredictable Cash Flow for Freelance Writers
Entrepreneurs whose income fluctuates need to adopt a long-term view of finances because they don’t have a regular paycheck, says Brad Stroh of Bills.com. Generally, after a few years of fluctuation, freelance writers will observe patterns – a slump around the holidays or in the summer, for instance – as well as determine a typical monthly minimum income level. Their budgeting, spending and saving can be done with that “base” in mind.
1. Set baseline writing and earning goals. A freelance writer could establish an absolute baseline of sufficient savings to cover expenses, such as quarterly estimated self-employment taxes and an emergency fund. Common wisdom suggests keeping six months’ living expenses in an emergency fund at all times. For working writers, this fund can become a “floating” fund to pull from during leaner times, then replenish when income increases.
2. Try “zero-based budgeting.” Everyone has fixed monthly expenses such as rent/mortgage, as well as consistent variable expenses (those that occur each month, but fluctuate, such as food and some utilities). Some freelance writers save money by holding off on discretionary purchases (luxuries) until they achieve a certain level of savings. Then, they continue to save and allocate a portion of that savings toward a planned seasonal purchase.
3. Set aside a percentage of your freelance income. With each check received (whenever that is), set aside a pre-determined percentage, based on your budget, for savings and investment. This tip for managing unpredictable cash flow helps me pay income taxes every April (or is it March?)!
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4. Sock away financial windfalls. When you earn or receive extra money (from a big magazine assignment or writing gig, for example), save rather than spend the excess money. Once you are used to living on your budget, chances are good you’ll actually feel more comfortable if you stick to that budget. If you stash the “extra” – in addition to the regular pre-determined amount – you’ll see your savings soar. This tip makes writing for money much easier to take.
5. Set up an automatic deduction plan — bill yourself. Take advantage of automatic deduction plans — some financial institutions let you arrange automatic withdrawal from your checking account to a savings account. Record this expense like a bill every month to painlessly accumulate savings. If necessary, start with a small amount like $25 or $50 per month and increase it whenever possible – when you pay off a credit card with a $50 monthly payment, increase your savings by that $50. With the same outflow you have today, you’ll be paying yourself as a working writer!
6. Save by investing your money wisely. Don’t just keep savings in your spending account with a mental note that they’re “saved.” Instead, put them in an investment or savings vehicle you’ve selected. If you don’t want savings tied up for the long term, you might choose a money market account that allows withdrawals only at certain minimum levels. Or purchase short-term CDs (three- or six-month terms) on a regular basis. This money tip for freelance writers will provide some interest earnings and force you to constantly reinvest.
“Whatever method you choose, do save, and do so on a consistent basis,” advises Stroh. “Chances are good that you’ll be surprised – and inspired – by the way your funds accumulate.”
If you have any questions or thoughts on managing an unpredictable cash flow for working writers, please comment below…
Bills.com is a free one-stop portal that offers information about personal finance issues, credit cards, debt relief assistance, insurance, mortgages and other loans.