By definition freelance writers have both an uncertain and an uneven income. In the United States, we must also pay self-employment taxes as well as for all our own health insurance and other benefits – at least until we get to retirement age.
In order to keep from running out of money or running up debt we have to do, perhaps, a more precise form of tracking and planning than those with regular paychecks. (I say perhaps because I know people with regular paychecks who track their money in the way I’m about to describe, and they tell me it’s helpful for them too.)
In my experience there are several parts to the solution of handling uncertain and uneven income well. The first is tracking all our money all the time.
Money Tracking Tools
I actually enter in Quicken every dime I spend. I do this by keeping receipts and carrying a 3×5 card to write down cash payments that don’t generate a receipt. Others use a spreadsheet. Of course, I track income the same way.
Leo Babauta who does the wonderful ZenHabits.net has an article called 6 Great Free Alternatives to Quicken & MS Money that can help you find a tool for tracking that will suit you.
And yes, when I was first challenged to do this I thought they were nuts. Who wants to spend hours and hours trying to find every single penny you spend in a month.
It turns out that it’s easy to do if I do it regularly (which for me means 6 days a week and means weekly or monthly for others). In fact, I spend about five minutes daily, and maybe 15 or 20 once a week when I reconcile my accounts.
Positive Results of Tracking Money
There are two major benefits I experience when I track my earning and spending:
- It turns out there’s real peace in actually knowing how much money I have rather than how much money I hope I have.
If you’ve ever written a check hoping instead of knowing it would clear you, know what I mean. If you’ve ever written a check hoping a deposit would get there first, you know what I mean. If you’ve ever not bought something because you weren’t sure you had enough money, you know what I mean.
- Looking at how I really spend money rather than how I think I spend money helps me make better choices.
Writing down each expense, or as I collect receipts knowing I’m going to write it down subtly changes how I spend, usually resulting in spending less without feeling deprived. Getting conscious of how I spend money means I do a better job with it.
Clarity Not Vagueness
Another way to state this is that by tracking my money I began to get out of vagueness. Although I didn’t know it when I began tracking, that clarity also contributed to my finally beginning to charge what the market would let me charge for my writing.
Tracking my money is only the first step. The next step is sorting it into meaning full categories.
Image from http://www.sxc.hu