Weathering the Financial Ups and Downs of Freelance Life

businessman on an armchair lost in the sea
A financial storm is almost always stressful, but paying your monthly bills during one is even more difficult if your main sources of income are freelancing or working for yourself.

These days, for a variety of reasons, more people are choosing to freelance full-time or to bring in income on the side. How many is a bit of a mystery. Freelancers Union counts 42 million independent workers in the U.S., while Businessweek reports 10 million Americans work as freelancers. I joined the ranks of self-employed a little over two years ago to help my wife run the business she had started several years earlier.

Be Prepared for the Money to Come to a Halt

The one thing you can bank on in self-employment is that your business will come to a standstill at some point. That was the situation shortly after I left my corporate role. Prospects seemed great, but nothing was coming in. While you can use times like these to market yourself, thought blogging (if you're a writer or in another creative field) or networking, for example, these activities don't address your immediate financial needs.

Speaking from experience, I can say that the key to handling your own personal financial downturn is this: Don't panic, but do go into financial lockdown mode. Avoid rash behavior and unnecessary spending, and find any reasonable ways to bring in some supplemental income. If you don't already use a budget, this is the time to craft one.

Budgeting and Goals

Among the excuses I've often heard people use for for not sticking to a budget is that they don't earn enough, or that they have a fluctuating income. But those excuses only highlight the common misconceptions about living on a budget. If you're a freelancer and depend on that income to make ends meet, then there is no time like the present to get a clear handle on your money situation.

Starting a budget from scratch when you have a fluctuating income presents a special challenge. However, budgeting as an entrepreneur can be done and done well. My wife and I had a budget during my days of corporate employment, but the decline in our household income forced us to look at further ways to cut the fat. This resulted in a "minimum-needs" budget.

A minimum-needs budget allows you to pay all your bills, closely monitor all non-mandatory spending, and also hit your savings goals –- albeit at lower levels. The key is to quantify each lower level goal. For example, saving for retirement while living on a fluctuating income is certainly possible –- you just have to work harder at it.

How to Handle the Surges

Just as any entrepreneur will tell you there are going to be lean times, there are also going to be good times that will tempt you to overspend. Avoid that temptation as much as possible.

Instead, apply your surging income to the goals you have set in your minimum-needs budget. Personally speaking, we use our surges to max out our retirement planning goals, but you can do such things as:
  • Top off your emergency fund (three to six months of living expenses).
  • Pay extra toward debt.
  • Put more toward saving for college if you have children.
The point is to make those extra funds work for you in the best way possible. When you're a freelancer, income waxes and wanes. Don't get caught wishing during a slow time that you had managed money more wisely when it was flowing in. Instead, you want to use those good times to hit stretch goals you have established for yourself and smooth out future downturns.

John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting, and frugal living. He is a father, husband, and veteran of the financial services industry who's passionate about helping people find freedom through frugality. He also writes about wise ways to manage your money at

6 Financial Issues to Tackle in the Fall
See Gallery
Weathering the Financial Ups and Downs of Freelance Life
For many employers, open enrollment season for some benefits happens in October. This usually sneaks up on some people, who scramble to decipher benefits and make elections last minute. Although you won't be able to see the options until the enrollment period opens, take time now to review your benefits. Are you taking advantage of any 401(k) matches? Are your fully funding your Flexible Spending Account? What about employer offered life and disability insurance? (A fun infographic from the Council for Disability Awareness shows your risks). Maximize your benefits and don't leave any money on the table.
Back-to-school time can be expensive if you're not prepared. Money is spent on clothes, books, supplies and technology -- and that's before the doors to the classroom have even opened. Before hitting the stores, do these two things:
  • Conduct an online search for "coupon code" along with the name of any store you'll be shopping at. Typically you can find some great online deals.
  • Get a list from you class or teacher of specific type of notebook, calculator, etc. required. If you can't get child's "must haves" from ahead of time, buy just the bare minimums until school starts and the list is available.
It's hard to think about the holidays when we're just making it through summer, but now is the time to build up a financial cushion. Set yourself up with an automatic transfer to a separate savings account and participate in the Holiday Fund Money Challenge to build up a savings of $450. How much do you need for the gifts, travel, parties, entertaining, food and other holiday activities you anticipate? Planning will help to ease the stress that comes around the holidays.
In lieu of scrambling at the end of the year to make contributions to retirement accounts by Dec. 31, double-check your contributions now and determine if there's room in your cash flow to allow for an increase to possibly max out by year end.
Summer is a typically a time of transitions. There are weddings, moves to new homes, possibly a new family addition and more. If summer is the time when these events take place, fall should be the time to take stock of how they're panning out. If you're recently married and haven't already, now is the time to have the money talk with your spouse and make decisions about spending plans, merging (or not merging) accounts, beneficiary updates and more. If you've moved, check out how the new location has affected your cost of living spending in terms of activities, gas costs, groceries and more. Ultimately with any transition, you need to review your spending plan and determine what areas (if any) need to be adjusted.
If you're lucky enough to live in one of the states that actually experiences seasons, fall is the time to prep for energy savings by caulking and weatherstripping doors and windows, turning your thermostat back for a fixed period each day and insulating your attic, basement or outside walls.
Read Full Story