The importance of freelance money management

There's no doubt that freelancing can be a lucrative career path, but fail to plan ahead and you could end up in a financial pickle, warns Corey Holms.

Although I absolutely love being a freelancer, and really have very little to complain about, I never imagined that one of the skillsets I would need to cultivate would be that of a money manager. Don't get me wrong, I have more than enough work, and a rate that has always left me with enough to pay the bills, as well as give my family a bit extra. But recently, I found myself in a situation where a hiccup in circumstances threw my finances for a loop and put us in a bit of peril.

I have a client that gives me a lot of regular work - enough for it to be counted on as a consistent paycheque. The client paid a few invoices early, then a few late, then added processing time to the standard Net 30 (a form of trade credit whereby it is agreed that the freelancer is paid within 30 days of completing the service). This gave me the unwelcome surprise of over six weeks without a regular paycheque.

It couldn't have happened at a worse time. I was in the midst of refinancing the mortgage on my house, my car needed an expensive service and my wife's paycheque also had a hiccup. In addition to the extensive expenditures, I had no money coming in. For the first time in 15 years, I started bouncing cheques. It was terrifying.

In my panic, I was double and triple-booking jobs, scrambling to get any income into the house, not taking into account that all those jobs are also a Net 30 - so while I was bouncing cheques, burning myself out and working all hours of the night, no extra money was actually coming in immediately, leaving me more and more frazzled. This may seem like Freelancing 101 to the vast majority of you, but I've rarely had a client that hasn't paid on time - and never has one payment hiccup put me in such a perilous financial situation, so this was a scary time for me.

Keep a cash buffer

The lesson I learnt was that you need an absolute minimum of a month's salary (preferably three) sitting in your bank account at all times, because even though you've done all the work asked of you in the time requested, there's no telling when you might actually receive your payment. Early on, take on additional freelance projects, and instead of doing what I did - which is to buy camera equipment - stick it in the bank and forget about it, because when you start getting late fees and bounced cheque fees it really adds up fast. All those additional payments can quickly amount to double the original invoice.

In the past, I've run things really close, with a tiny margin of error, and it always worked out fine until now. But busting my backside and burning myself out has still left me without a payment for another 30 days. And I'm likely to have to take on even more work to make up the difference. Had I put some money away properly, the work that I'm doing on the weekends could have paid for a better Christmas for my family, instead of going towards the mortgage.

Words: Corey Holms

Corey Holms studied graphic design at the California Institute of the Arts, and has been practising it for over 15 years. Although primarily working in entertainment design, he also specialises in type and identity. This article originally appeared in Computer Arts issue 223.

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