You see, freelancing is not just a passing trend, it’s something that’s definitely here to stay and at the moment, about 35 percent of Americans are working as freelancers, at least part-time. Another thing worth mentioning is the fact that freelancers are mostly millennials (47 percent of them), and the two things that define millennials when it comes to finances are confidence and a lack of knowledge. This is why keeping a positive cash flow might come as a major challenge to a freelancer. Here are five tips to help set this straight.
Recognize that there might be income patterns
In some fields, especially if the fields are retail-related, there are some periods/events that come with much higher sales. For instance, if you’re selling computer parts and there’s a new AAA video game announced, you can expect there to be a rise in demand for GPUs. Second, there are some retail businesses that see a lot more work during the holiday season and then the demand for their products declines over the course of the year. In general, you need to recognize this income pattern in order to avoid overspending during the slower part of the year.
Our next tip derives directly from the previous segment and it suggests that you need to start saving money during the peak of the season (high-income period) and downscale when the situation is not great in your favor. Now, keep in mind that if the difference between your high and low season is drastic, what you need to do is keep a flexible business model. This way, you’ll be able to manipulate your resources and assets so that they work for you and not against you. One example of how you can do so is by discontinuously using some of your work software. For instance, the majority of online tools have both free and premium tools, so, why not use a premium tool during the peak of the season, and during the downtime, you can switch to a free tool or an open source alternative.
Have alternative solutions
Another thing you need to understand when it comes to cash flow is the fact that it’s there to cover your operational expenses. Unfortunately, there are some scenarios in which this will be incredibly difficult. For instance, imagine a scenario where you have an invoice coming, but you don’t have the luxury of waiting for the money to arrive. In such a scenario, the best course of action might be to sell the invoice in question to a factoring company. On the other hand, in a scenario where you’re momentarily short of cash and your next payday is not near enough, what you should probably do is find platforms specializing in payday loans and see what kind of offer they can make.
Start an emergency fund
During the high-income part of the season, you should probably leave some money aside in order to have an easier time dealing with situations where you might fall into an income crisis. So, set your emergency fund objectives at an appropriate level and start saving. As far as the amount of money that you need is concerned, it’s recommended you have enough to cover at least three months of your expenses (while some go with as much as nine). This is especially important for freelancers, seeing as how your income is not as reliable as for those who are employed in a traditional manner. Also, keep in mind that there is a plethora of saving strategies that can gamify this experience.
Keep a list of your expenses
Finally, sometimes the most important thing you need to do in order to keep a positive cash flow is to keep a list of all your expenses so that you can understand your spending habits a bit better. Your income is irrelevant if you’re spending far beyond your capabilities. As a freelancer, you’re also a sole proprietor of sorts, which means that your private funds and your work-related funds aren’t separate. This is why it’s vital that you lead a more frugal lifestyle and what better way to do so than to start tracking your expenses? Finding a suitable app can make this task so much easier.
In the very end, what you need to understand is the fact that keeping a positive cash flow as a freelancer shouldn’t be something that takes a lot of effort. All you need to do is learn a thing or two about finances, explore cash flow improvement mechanics that you have available (selling invoices, applying for short-term loans) and be careful how you spend your money.