Money Management and Living on a Budget for Freelancers – Part 1: Income

This not going to be a series of posts where I tell you to stop buying lattes at Starbucks (though I will talk about what I do instead). Nor am I going to magically fix your budget with a few suggestions – wish I could, especially in these times when many people are facing budget strain, freelancers not least. But over the past few months, as I’ve advised a number of new freelancers, I realized there numerous tips I wish I’d taken sooner, and which seemed new to my friends. So I’m sharing them here in case they’re new to you.

We’ll take a stroll through my budget, not discussing exact numbers, but sharing my tips for maximizing what you get in what you earn and for what you spend or give.

Incidentally, I manage my budget using Mint.com from Intuit, a free website that makes money by referring financial services (I find these referral ads unobtrusive and fairly easy to ignore or turn off, well worth the usefulness of Mint). But whatever sort of system works for you–software, spreadsheet, pen ‘n paper, your prodigious memory–is good.

Section One: Income

I have four main classes of income that seem applicable to most freelancers.

First, the biggest and most important source: my copyediting fees. I bill both by-word and by-hour, though over time I’ve come to prefer the hourly method in most cases. I’ve determined both a reasonable hourly rate and a reasonable number of hours to bill per day so that I’m earning enough for my financial goals, but not overworking myself (which would dull my eagle eye and insightful suggestions!).  When scheduling work, I’ve also tried to protect my evenings and weekends so that I have time for rest, errands, and/or socialization. Some entrepreneurs brag about pulling 80-hour weeks. I won’t say you’ll never have to do that (although I don’t think it’s physically possible to edit for 80 hours in 7 days), but you don’t need to, and really shouldn’t, make it your normal.

• A thing to be aware of with receiving freelancing payments: aside from income taxes (discussed later), you’ll watch a surprising amount of your earnings go to transaction fees. Fiverr and Upwork offer great structure for finding clients and managing contracts, but take 20% of the transaction as a fee. Even PayPal swallows a chunk. I’ve started to prefer invoicing through Google Pay, which offers direct deposit to a bank account. Good old-fashioned checks are also useful, but do look up the rules for when 1099 statements start needing to be issued.
• A tip someone once gave me, which I’ll pass on to other freelancers, and is “Raise your rates and you’ll immediately eliminate most problem clients.” Clients who are a bit broke or cash-strapped aren’t a problem; entitled and penny-pinching ones certainly can be, though. You are trading them hours of your life and skills you’ve worked hard to cultivate; ensure respect goes both ways in the relationship–and if nothing else, this respect can be expressed financially. As you gain a track record of success, remember to give yourself a raise (while leaving room to negotiate options for golden-but-broke clients!).
• Meanwhile, however, when you’re just starting out, it can be good strategy to “overdeliver” on the first few projects–partially this is because you’re ascending a learning curve and aren’t as efficient as you will become, and partially it’s because good reviews and testimonials are worth an extra hour or two of unbilled work, especially as you’re building your track record. (The corollary isn’t that you’re “underdelivering” on the rest of your career, but rather than you’re finding a healthier work-life balance and opportunities for more efficiency, smoother workflow, and more well-managed project scope. But rewarding the first clients who take a chance on you can be good for everyone.)
• While starting out, you should assume you will not be earning enough to cover living expenses for the first few months (or longer).  This can mean doing one of the following:
  • Live with your family or parents ’til you save enough to strike out on your own (thanks, Mom!)
  • Work your day job while building up a significant savings cushion to supplement your initial freelance earnings (I’m going to talk a lot about the value of significant savings cushions at every point in your freelance career, actually)
  • Continue working an outside job at least part-time to supplement your freelance earnings
  • Have a partner with a steady income, and mix your freelancing with “house spouse” duties.

A second source of income is interest accrued on savings accounts. Interest rates aren’t high these days, but you can find credit unions or online banks with better offerings than most (I’m currently switching from a CD ladder at my credit union to an online account with Ally). Because of the feast-or-famine nature of freelancing, a savings account balance is vital, and you might as well earn a dollar or two a month on it. And sometimes well more than a dollar–I’ve had years where my 1099-INT income was in the three figures.

Third, there’s passive income: in my case, book royalties. I’ve set up my Kindle Direct Publishing and Draft2Digital accounts so that these are deposited straight into my savings account, and since the earnings month-to-month are unpredictable, I don’t budget for them: anything earned here is a “bonus.” Again, it’s not much–at best a little higher than my interest earnings–but it’s money I don’t need to work & bill additional hours for each month. It’s also money I could continue earning if I broke my arm and can’t sit at a laptop typing editing notes for a few months, which, I’ll be frank, is a real concern for me.

Fourth, there are less predictable sources of “bonus” income, some of which I can earn in my downtime.

• I’m a member of MyPoints, where I earn points for filling out surveys, printing & using coupons (more on coupons in my next post), signing up for a subscription or buying something from an online store (only if I’d planned to buy it anyway), and sometimes just from clicking a link in a MyPoints email. That last is my most common way to earn points, and those email clicks add up slowly but steadily. MyPoints points can be cashed out for gift certificates or for cash through PayPal.
• I’m also a member of the Life, Fun, & Everything panel (I fill out a monthly survey on my video-watching and book-buying habits for $2), the Esearch panel (all sorts of survey and study opportunities), and an email group for a local market research firm which sometimes offers invitations for in-person focus groups paying $50-$100/day.
• Additionally, Amazon Mturk hires workers for “HITS,” microtasks that need human input, which can include transcription and surveys. The pay per HIT is low, but gets better as you continue working on the site and earn a higher rating and qualifications. If you enjoy taking part in demographic and psychological studies during your downtime, it’s not a bad way to earn a few bucks a day. I once did an Mturk study where I got to make up stories about cartoon robots.
• If the above sound interesting, you might be interested in the Reddit beermoney community, which has a list of common websites and seems to be good at vetting scammy or unreliable ones. As the subreddit title implies, this isn’t going to be your primary income, but it can be useful extra earnings, especially from your free time (a friend of mine who does voice acting and narration uses Mturk when they’re not up for talking, like early in the morning or after lunch, and for a while was earning about $90/month).
• I also class as “bonus” income anything I earn selling used books on Amazon (it’s something, but shipping can swallow a lot of this; thank god and the post office for Media Mail rates), gently worn clothing and jewelry through Poshmark, affiliate earnings through my Amazon and Bookshop.org links, and upfront payments from sales of short fiction. None of it’s predictable money, but they’re all extra dollars in my savings account.

My “expenses” budget is more-or-less equal to my copyediting income (ideally, copyediting income should exceed expenses; I have my reasons for budgeting a bit high on expenses, as I’ll discuss at the end of the series). Interest earnings help me reach my savings goals — a dollar in my savings account is a dollar in my savings, whether I put it there from my earnings or it accumulated via interest. Passive & bonus income is intended to help with savings, but in a leaner month they might go to covering expenses. And in especially dire months, I can withdraw from savings to cover my expenses.

My next two posts will discuss ways I keep my expenses lower.