Creatives offer their advice on how to manage freelance finances, from pricing and overhead to taxes.
Being Freelance has many advantages, but independent finances can be stressful. It often means you have to be your own human resources and accounting department; When you don’t have a guaranteed steady income each month, you must be prepared for any eventuality.
Amid inflation and high costs of living, freelance financing can seem even more daunting than before. However, it can have many benefits. After all, you control your prices and have some flexibility to react to changes in costs.
Organization is a key point and it can be useful to find side projects to avoid depending on a single client.
Financial Tips for Freelance
We asked a variety of creatives who have made the leap into freelancing for their ideas on how to make it work. This is what they said.
Set realistic expectations and prepare for independent finances.
When jumping into the void of freelancing, it’s good to have at least a little cushion underneath you. Many recommend accruing at least three (preferably six) months of living expenses before becoming self-employed. Also, have a plan for what you will do if things don’t go well.
“You should think of your new business as if it were a startup: savings are a ‘clue’ to move beyond the stability of a monthly salary,” are the recommendations given by speaker and lifestyle strategist Christopher Murphy.
“I told my wife we needed at least six months to figure out if my freelance work would work,” recalls creative director, designer and developer Shane Mielke. “And if I wasn’t successful, I would immediately apply to whatever agency would accept me, so as not to cut into our savings too much.”
While this may seem like a pessimistic step to start with, Mielke is a firm believer in the benefits that freelancing brings. “I made one tweet, got my first project, and haven’t looked back since,” he says. “Although people sometimes think that freelancers sacrifice money for freedom, this is not necessarily the case: it can be very profitable and I have always made more money than when I worked as a salaried employee.”
Try to get paid in stages
Mielke says organization is crucial, and many others who have dealt with freelance financing agree. Andy Budd, founder of design consultancy Clearleft, notes that one of the main challenges of freelancing is the unequal nature of income: “Even if you’re lucky enough to immediately land a long-term contract, you’ll probably be working for a month before of “You can invoice. And many companies pay in 60- or 90-day cycles: If you miss one payment window, you’ll have to wait until the next one.”
Even when dealing with smaller businesses, you may find yourself chasing payments, which is why graphic and web designer Colm McCarthy recommends “requiring a 50 to 60 per cent deposit from new clients, with the remaining balance handed over in staggered payments upon delivery of the agreed work.” . Naturally, you’ll want this written in a contract.
You have to manage your general expenses
Income is at least widely understood among most people considering self-employment. Expenses… less, and this is an increasingly challenging area when inflation is high. If you previously worked in a salaried environment, it’s easy to not worry about the cost of things since you don’t have to pay for your own tools and supplies. That’s very different when you work on your own.
“You need to keep track of exactly what you need to use in your business,” recommends brand designer Rachel Shillcock. “I work with a lot of online tools and renewal bills add up quickly. That’s why I do an audit every quarter to make sure I cancel everything I’m not using.”
Murphy notes that this should cover absolutely everything: “Software. Pens and paper. Sticky notes. Everything needs to be accounted for. When you’re salaried, someone else pays for these things. As a freelancer, you cover it yourself. So record receipts.” . and at the end of the year you will know how much the accessories cost. This can then be taken into account in invoices.”
Be ready for the tax man
As George Harrison’s song “Taxman” said, dealing with “the taxman” can be intimidating. “There’s that fear of the unknown,” Mielke says. “If you’ve never dealt with taxes, health insurance, or forming an LLC, you may worry yourself to death and never take the plunge.” I initially hire an accountant to handle the process; By understanding how to use a separate credit card to isolate expenses and set aside money for taxes and insurance, worries soon faded.
In the case of the United States, health insurance in particular is a cost to take into account. Mielke notes that at first “it seems like a huge additional burden,” until you realize that before “your employer automatically deducted it.” Since it’s part of running a business, you may be able to cancel it. Also, please note that in regions with a national health service rather than compulsory private insurance, you may still be responsible for some costs (such as national insurance contributions in the UK). Again, consult an accountant if you are unsure.
One thing that there is absolute certainty about is taxes. “It’s almost always more than you’d expect, so don’t come to the end of the year with a bill you can’t pay,” Budd urges. A smart idea, Murphy thinks, is to routinely set aside a percentage of your income in a savings account. Budd warns that this can also work the other way around: “Instead of viewing your income as a pool of money to dip into whenever you want, treat your bank account like a business and pay a fixed monthly fee.” This ensures that you are covered for payments and any issues that arise.
Spread the word
Any business can be affected by inconsistency in work, but it will be especially stressful for a freelancer who has to navigate gaps in a calendar. Ideally, you should start working and get jobs before leaving paid employment. The trick, however, is to keep the ball rolling instead of forgetting about it when delivery times reach our waists.
Even having a shared office space can be helpful. “They are good value for money, sociable and a place to find work simply by being there,” says McCarthy. But direct action tends to be more fruitful. “You really need a proactive marketing and sales strategy,” says Paul Boag, digital strategy and user experience design expert. “Too many people rely on recommendations and have no plan when the phone stops ringing.”
“Fear is a great motivator,” Mielke tells us, and this drives his marketing strategy of getting ahead and staying ahead. He does little things throughout the year to keep them in customers’ minds instead of waiting until things get slow. “I do this by continually striving to create high-level work that gets me noticed, submitting personal projects for awards, keeping my portfolio up to date, and maintaining real friendships with the people I’ve worked with,” she explains.
“It’s a constant hustle and the ebb and flow of projects is ultimately out of your control. But when you’re an expert in your area and you’re at the top of the list of people doing certain types of projects, you’ll get the first place. choose from what is available.”
Shillcock admits this is something she has struggled with: not doing enough marketing during busy periods. “But in those moments you have to remind yourself that you don’t want to end up with a quiet season once it’s all over,” he says. Again, maintaining a financial cushion can help, but he adds that it’s often easier to retain customers than to find new ones, so you should also consider introducing retainers. “This allows us to continue working long-term with clients after the initial project is completed,” he says.
It’s rare that the work is done once the last code is compiled – there is a lot of ongoing maintenance work that needs to be done and that can add up to a very significant revenue stream. “Maintenance packages can be sold to agency clients, thus generating a recurring revenue stream,” Fabio Torlini, senior vice president and general manager EMEA at web hosting company WP Engine.
Too many people rely on recommendations and have no plan when the phone stops ringing
Paul Boag
“This will often include a hosting component, but also assistance with plugin updates, reporting, responding to alerts, and other tasks related to running a properly maintained website.” This probably seems like a lot of work. But while these things aren’t entirely passive, they can be a win-win: a high margin for the freelancer and relief for the client, knowing their site will be well taken care of.
Take some time off
No matter how carefully you plan your future workflow, you can’t be active all the time and this means you have to give yourself some downtime, which is actually a self-inflicted deadlock. We often hear about freelancers who spend their holidays in front of a screen. This is not what you should aspire to.
“Taking time off is not easy for freelancers, but it is doable,” says Boag. “Give clients as much notice as possible and remind them frequently. Also, keep in mind that you don’t need to treat everyone the same. When I leave, I turn off email notifications and set an ‘out of office’ response. ‘But I tell my most important clients, I have enabled notifications for their email addresses and I will respond in a timely manner.’
Diversify your freelance work
Another way to deal with low points is to make sure you don’t rely on a single source of income. “Diversify your offerings,” says Boag. “I conduct a lot of training and offer consulting alongside my UX design services. When one is quiet, I push the others.”
Effectively, focusing your energy on several different areas means it’s easier to ensure you have some way to make hay while the other field lies fallow. “For years, I have told my students the importance of developing a career,” Murphy says. “I work part-time as a teacher and part-time as a consultant. They are two different sources of income and both help me stay afloat.”
Even working a little at a time can help fill in the gaps in calmer times. “Freelancing in-house for design studios has been a huge win for me,” says McCarthy. “I can help when someone goes on leave and the salary is pretty good.”
The key, Mielke says, is to challenge the notion that you only have to be one thing. People within the industry have built up experience and skills in many areas and should use them. “Depending on the project, I work on UI design, front-end development, animation, and even photography,” she explains. “Sometimes I’m hired for one thing and sometimes I’m hired for multiple skills and to handle an entire project. But my variety of skills allows me to get involved in more projects, control my creative destiny, have more fun, and ultimately make more money.”
Develop secondary activities
And over time, many people find that this diversification can generate valuable additional income streams on their own. For example, Mielke has written a book, the proceeds of which put her daughters through college, and she knows others in the industry who do very well selling things like illustrations, fonts, posters, stickers, and all kinds of physical and digital together with customers. Projects for which they are hired.
This is an avenue in which Shillcock has been successful. One of the reasons she worked independently was because he suffered from a chronic illness that causes pain and fatigue. But she began to overwork herself and sink, to the point that she burned herself twice in two years and had to be hospitalized. She then started looking for alternative ways to make money online.
“Being self-employed doesn’t always mean trading time for money,” she says. “Since those overworked days, I’ve published online courses and self-published books and am currently creating digital products to make my branding methods more accessible to people who can’t afford to work with me one-on-one. base.” She has found this to be a rewarding and fun way to make money, so she urges talented designers to think more broadly: “Write books! Create worksheets, online courses, apps and guides.”
If you want a guide to doing this, Murphy recommends Rachel Andrew’s ‘The Profitable Side Project Handbook’, which is “packed with useful advice and is itself a good example of a profitable side project.”
However, while it’s tempting to want to wear every hat you can get, it’s worth remembering that launching a completely new side hustle can often require just as much effort as launching your original career. “Everyone dreams of launching an app or selling a course, but in reality it’s a fantasy, because you still have to market the product and offer customer support, let alone develop it,” Boag offers as a helpful dose of reality.
He believes that unless you have time to fully invest in such companies, it is best to try to drive the market and increase rates as you go to ride out the ups and downs.
Get the prices right
The bread and butter of self-employed finance is getting the right rates. The general consensus is to price based on what the market will absorb. If he finds that the local market has “low rate expectations,” Budd recommends looking for a more national and international audience.
When establishing an initial baseline, Boag cautions that several factors must be taken into account. “Too often people charge less because they think they can spend all their time,” he says. In truth, it’s more like half when you consider weekends, holidays, and administration. And any rate he decides should also be more indicative than a fixed position. “If you’re overwhelmed, raise your rate,” he says. “If you don’t like the job, raise the price to an amount that makes you willing to do it.”
Experience should also be a factor, as should where you are expected to work. “I charge more for stressful projects that might require specialized work, like immersive WebGL development or one-off UI design, than I do for basic front-end development or UX design,” Mielke says. “If a project has an extreme deadline, needs me on site or requires my exclusive attention, my prices increase.”
Get paid differently
But it’s also worth considering moving away from traditional fares. “Charge by the hour and clients will try to beat you down, arguing that different tasks will take less time,” says Murphy. “To avoid a slippery slope where I get paid less than I should, I use a value-based pricing model based on the client’s budget and what they hope to achieve.”
Shillcock takes a more controversial view. “I believe in value pricing, but I know that those I work with regularly have very specific needs. That’s why I’ve created packages to offer them items they keep asking me about.” The notion of fixed pricing is anathema to some in the industry, but Shillcock says it’s a good bet if you can make it work. “My ideal clients found it much easier to get an idea of what I would charge and increased my bookings.”
Again, you’ll want to retain some flexibility so you can balance your finances as a freelancer. Shillcock still offers custom pricing and previews that don’t fit into specific packages. But he doesn’t regret the “packaging” work nor does he believe it devalues production. “If anything, it creates more value for the people I want to work with and builds enormous trust between me and my potential clients.”
Whatever his focus, Torlini says the goal should always be to offer value to customers. “Set the anchor price in relation to the benefit you offer and you will be able to better position the value of your services, escape the trap of being treated as a commodity and earn the right to demand more fees.”
Offer value, focus on developing your creativity to the maximum, work on projects with decent remuneration. It seems to be every Freelancer’s dream.
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