Learning to manage money well is a key to freelance writing success.
Unfortunately, many freelancers feel the way I used to. I’d hear the words ‘manage your money’ or anything close and immediately I’d have mental images of huge spreadsheets, the IRS, and balancing checkbooks by hand, without a computer or even a calculator.
When I finally faced that I needed to get a handle on my money I discovered that it isn’t nearly as difficult as I thought it would be.
Nor, fortunately, does it all have to be handled at once. So if like you’re like I was and finances make your head swim and you’d rather do the dishes or the laundry instead of look at your money, take a deep breath, maybe two.
If you’re starting, as I once was, from not only knowing nothing about it but scared half to death as well, take another deep breath. Like so many thing about the freelance writing business, freelance writers can manage money – it’s a totally learnable skill. Here are some tips to get you started:
1 – Be willing
The first step in the business of managing your money is to be willing. Be willing to discover where you’re at financially. Sure, money can be a scary subject. But if your finances aren’t in order, your chances of failing your freelance writing career multiply. Besides, worrying about money is a horrible distraction. Once you actually decide to learn how to handle your money and take action toward it, the pressure will star to come off. Just notice your resistance and be willing to look at at your anyway even if it’s a scary old monster, or you think it is. I actually started this project by spending ten minutes a day five days a week.
2 – Think business and personal
Begin to recognize the difference between your personal finances and your business finances.
For one thing, you’ll find it simpler over time to be able to track your business expenses and income separately from your personal expenses and income.
It makes sense, even if you’re using your own name as your business name, to have separate accounts for your business. I use a credit union because I don’t like what banking has become. In reality my business account is just a second checking account. It works well for me that way and it’s easy. BTW, my credit union has free checking.
It will help you at tax time because you’ll know what are business expenses and business income as opposed to the personal side of your financial life. It’s far easier to tell if you’re really making a profit with your freelance writing or not. Either way actually knowing where you stand financially will inform many of the business decisions you need to make.
3 – Track your income
You need to know how much writing income you’re actually making. Many freelance writers have multiple sources of income. Make sure you know exactly how much is coming from your writing by tracking your income and your expenses.
Although I automate my bookkeeping through a computer program – I use You Need a Budget which let’s me track income and expenses easily – I also keep a running spreadsheet that makes up what some call spending plan.
It’s different than a budget because every month I estimate what my income will be and then, as the income comes in, I add the actual income in its own column. Watching these numbers lets me know several things:
- When I need to do a marketing push.
- If can take on a big project or not.
- When I need to raise my fees.
Tracking income is a must how ever you get it done, but it’s only part of a spending plan. Tracking expenses is also part of a complete one.
4 – Track expenses
I’ve found it helpful to track each and every one of my expenses, even my cash. Not only does it help at tax time, detailed tracking lets me spot money leaks, and they can show up in the darnedest places. By now, probably everyone’s heard how easy it it is to spend hundreds on fancy coffee. Writers often spend more on books and magazines than may make sense even when they are deductible.
Tracking expenses can also show us where we’re not spending enough money – usually in some category like entertainment or clothing. Again, I use the program, You Need a Budget. If I ever switched from that, I suspect I’d go to FreshBooks which also does invoices and, apparently, time tracking. I then move the totals in each category over to my spending plan so I can add what I actually spent and compare it to what I’d planned to spend.
Once I got set up I find I spend maybe 10 minutes a day adding expenses, 15 minutes once a week balancing my accounts and maybe another 30 minutes once a month with my spending plan.
Admittedly, it took awhile for this to become a habit, but I’m glad I worked on it. Knowing where I am financially is not only good for my business it keeps my stress level down.
5 – Save money
A good-sized savings account or several is a freelance writer’s secret weapon for success.
I put at least 10 percent of every bit of income into a savings account I call prudent reserve. This is the account I use to smooth out my income – if I need some I take it without guilt, making sure I put it back ASAP. I also save about 12 percent for taxes – that’s the number my tax guy gave me; you’ll want to ask yours and not take my word for it. Another 10 percent goes into business savings – wonderful when the hard drive dies. Which means I actually live on about 68 percent of my income.
I also have a bunch of smaller accounts like for vet expenses with my cat, and savings for a new car, and so forth.
The reason I call savings a secret weapon? Because when I’ve got at least several months of living expenses saved, I’m a way better negotiator. With savings I’m coming from strength. Sure, I learned to negotiate well before I had solid savings – take it from me, it’s way easier when my savings are topped off.
Investments may be in your future
Stay consistent with your savings and you may find investments are in your future. For many that means either real estate or the stock market. I don’t yet have the cash I need to invest in real estate, but stocks can be a much lower initial cost. The trick, of course, is how to choose which stocks. A company I’m recently looking at closely is Swell Investments. Their focus is on companies that do good – which is defined on their website. Their pricing is dirt simple and they offer a variety of approaches, including three kinds of IRAs for tax sheltering. Do your due diligence as I’m doing please.
However you manage your money, make it simple which means you’re much more likely to do it regularly.
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Write well and often,