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lagilmanSome people do TMI about sex, or emotions, or physical symptoms. Me, I occasionally talk about Money. Specifically, the handling and planning of freelancer finances, although it can be adapted to the day-wage person, too.
Avert your eyes now, if it squicks you out. But think about WHY it squicks you out, when you do so
Today, I'm musing again about the ever-important emergency fund.
When I put together my projected budget for 2009, I scheduled out all the payments that would be due this year, based on contracted delivery dates, and predicted my income/outflow on that. All was well and good....except I blew one deadline by just enough weeks that I got caught in the Publishing Holiday Freeze. That's the period between Thanksgiving and New Year's, when it's a well-established fact that unless a payment is requested prior to the start, you probably won't see the money until after the new year, because the people who need to sign off on things won't be in the office.
So now I'm staring at -- not exactly a shortfall, because the money is coming, it will just be a few months late, and apply to the 2010 budget [for work done in 2009]. Which is weird and confusing and how the freelancer dice rolls, sometimes. This is why we have professionals help us with our tax prep.
It's also a good example of why a freelancer MUST maintain an emergency fund. I'm not talking about "enough cash to cover your bills for the next month," either. That's a good basic rule for everydamnbody to follow. But as a freelancer, you should have at least six month's basic living expenses (rent, food, health insurance, home/car insurance, utilities) in an account for the "everything falls apart, can't get a job pumping gas" worst case scenario.
Six months minimum. A year would be better.
Yeah, I know. Impossible. But unless you like staring at the ceiling at 3am panicking over money, you need that safety cushion. Because scenarios like the one I mentioned in the first paragraph? That's not even close to worst-case possible.
(ask any freelancer: contracts have fallen through, projects have been canceled, a favored editor is let go and their replacement won't take your phone calls or the entire magazine goes under, a dry patch gets dryer...)
If you don't have the emergency fund now, you can still make a start at it. Take the cash you were going to spend on a latte, and put it away. Ditto that new printer to replace the one that's not dead yet, or the new cd or dvd you really wanted. Have half the drinks you planned, when you're out, or eat in a cheaper restaurant. Do that consistently, until you have $250, or $500. Open a savings or money market account that pays interest, and put the money away. Add to it: do not remove anything from it. Yeah, it sucks not to be able to do/buy things. Pay yourself now, be thankful for it later.
Once you have that emergency fund? Be smart with it. Invest carefully, not aggressively (I have mine in a money market account, so I can get at it quickly, with minimal risk) And, if you can without freaking out, 'trick' yourself.
Trick how, you ask?
An Example: My emergency fund is only at $X, a little less than it should be. So part of my mind, being very busy with daily stuff, thinks "damn, emergency account is low, be careful." However, part of that "low" is because I took $Y and put it into a CD back when rates were higher. So come mid-2010, that money will come back to me, having earned more relative interest than the dollars left in the emergency fund. So I 'trick' myself into being careful, and then when I have time to think, I go "oh, no, we're okay, but still, good to be careful."
And because I am a very busy person, I also find myself forgetting* that, at the same time, I took a surprise windfall of cash and opened an ING Direct account. So there is also a small sum available for real, immediate emergencies. Squirrel iz Me.
This method will not work for everyone, though. Know your financial comfort zone! And if you aren't sure -- talk to a certified financial planner. The cost of that meeting could save you far more, down the road.
None of this is easy, no. It involves self-control and common sense and thinking about more than the moment. But the reward is knowing that, when tough times hit, you aren't going to go into a tailspin -- you have room to plan, rather than panic. And if you never need the money? Then it becomes part of your "I don't want to work so much any more" plan (what day-wagers call "retirement").
*[this is also why a) you keep very good records and b) you review those records every quarter...]
Next up: cash vs credit, and why I won't use a debit card (vote 1) or Taxes are coming. Am I ready? (vote 2)
REPEAT OF OB DISCLAIMER, for those who missed the jump-cut: I am not a Professional Financial-Type. These are just my own personal and hard-won observations/experiences.
Avert your eyes now, if it squicks you out. But think about WHY it squicks you out, when you do so
Today, I'm musing again about the ever-important emergency fund.
When I put together my projected budget for 2009, I scheduled out all the payments that would be due this year, based on contracted delivery dates, and predicted my income/outflow on that. All was well and good....except I blew one deadline by just enough weeks that I got caught in the Publishing Holiday Freeze. That's the period between Thanksgiving and New Year's, when it's a well-established fact that unless a payment is requested prior to the start, you probably won't see the money until after the new year, because the people who need to sign off on things won't be in the office.
So now I'm staring at -- not exactly a shortfall, because the money is coming, it will just be a few months late, and apply to the 2010 budget [for work done in 2009]. Which is weird and confusing and how the freelancer dice rolls, sometimes. This is why we have professionals help us with our tax prep.
It's also a good example of why a freelancer MUST maintain an emergency fund. I'm not talking about "enough cash to cover your bills for the next month," either. That's a good basic rule for everydamnbody to follow. But as a freelancer, you should have at least six month's basic living expenses (rent, food, health insurance, home/car insurance, utilities) in an account for the "everything falls apart, can't get a job pumping gas" worst case scenario.
Six months minimum. A year would be better.
Yeah, I know. Impossible. But unless you like staring at the ceiling at 3am panicking over money, you need that safety cushion. Because scenarios like the one I mentioned in the first paragraph? That's not even close to worst-case possible.
(ask any freelancer: contracts have fallen through, projects have been canceled, a favored editor is let go and their replacement won't take your phone calls or the entire magazine goes under, a dry patch gets dryer...)
If you don't have the emergency fund now, you can still make a start at it. Take the cash you were going to spend on a latte, and put it away. Ditto that new printer to replace the one that's not dead yet, or the new cd or dvd you really wanted. Have half the drinks you planned, when you're out, or eat in a cheaper restaurant. Do that consistently, until you have $250, or $500. Open a savings or money market account that pays interest, and put the money away. Add to it: do not remove anything from it. Yeah, it sucks not to be able to do/buy things. Pay yourself now, be thankful for it later.
Once you have that emergency fund? Be smart with it. Invest carefully, not aggressively (I have mine in a money market account, so I can get at it quickly, with minimal risk) And, if you can without freaking out, 'trick' yourself.
Trick how, you ask?
An Example: My emergency fund is only at $X, a little less than it should be. So part of my mind, being very busy with daily stuff, thinks "damn, emergency account is low, be careful." However, part of that "low" is because I took $Y and put it into a CD back when rates were higher. So come mid-2010, that money will come back to me, having earned more relative interest than the dollars left in the emergency fund. So I 'trick' myself into being careful, and then when I have time to think, I go "oh, no, we're okay, but still, good to be careful."
And because I am a very busy person, I also find myself forgetting* that, at the same time, I took a surprise windfall of cash and opened an ING Direct account. So there is also a small sum available for real, immediate emergencies. Squirrel iz Me.
This method will not work for everyone, though. Know your financial comfort zone! And if you aren't sure -- talk to a certified financial planner. The cost of that meeting could save you far more, down the road.
None of this is easy, no. It involves self-control and common sense and thinking about more than the moment. But the reward is knowing that, when tough times hit, you aren't going to go into a tailspin -- you have room to plan, rather than panic. And if you never need the money? Then it becomes part of your "I don't want to work so much any more" plan (what day-wagers call "retirement").
*[this is also why a) you keep very good records and b) you review those records every quarter...]
Next up: cash vs credit, and why I won't use a debit card (vote 1) or Taxes are coming. Am I ready? (vote 2)
REPEAT OF OB DISCLAIMER, for those who missed the jump-cut: I am not a Professional Financial-Type. These are just my own personal and hard-won observations/experiences.
