“Writing is turning one’s worst moments into money,” said Irish American author J. P. Donleavy.
There’s your first tip for managing an unpredictable cash flow: turn your pain into stories, your stress and anxiety into tips for magazine articles and blog posts! If you’re not earning money as a freelance writer – or you wish you were a working writer – the tips below will help.
The more you can turn your life into writing fodder, the happier and wealthier you’ll be as a writer. If you’re just starting out, read Make Money As A Freelance Writer: 7 Simple Steps to Start Your Freelance Writing Business and Earn Your First $1,000. These tips on how to manage your money will help you figure out to do with all the money you make…
How to Manage an Unpredictable Cash Flow
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?)!
Learning how to deal with financial stress as a freelance writer is crucial.
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.”
Are you just starting out as a writer? Read Freelance Writing Pay Rates – Newspaper and Magazine Articles.