5 smart tips to avoid going broke as a freelancer

5 smart tips to avoid going broke as a freelancer

Freelancing is a funny kind of game. When business is going well, you can find yourself making more money than you ever have in your life, and the thrill is amazing.

When things aren’t going as well … you might find yourself staring at an empty bank account, wondering where the hell all the money went while feeling rising panic in the pit of your stomach.

If you’ve ever been in that situation (or are in it right now), you’re definitely not alone. Schools don’t teach effective money management, and they certainly don’t teach it for freelancers (arguably the people who need these skills most).

It’s even worse if you’re in the 35-and-up age group – our parents never spoke of money or how to manage it properly, and if we learned anything from them, it was only thanks to keen observations skills… if we had them, and if we even bothered to pay attention to our parents.

I mastered money management skills the hard way. Today, I’d like to share a bit of what I know to help put power back in your hands.

I want you to get past, get through and forever avoid going broke on that feast-and-famine financial cycle freelancers are all too familiar with.

Start Tracking Where You Are Right Now

People often think that freelancer “famine” means incoming money dries up or becomes hard to come by. That’s true to a degree, but this usually isn’t the real cause of financial hardship.

What really often happens is that freelancers spend money without having a sense of their current financial situation – what they need each month, what’s coming in, and what’s going out. And when a cash-flow hiccup occurs, these freelancers are caught with their pants down.

It’s not a pretty sight.

Some say the solution is to tighten your belt, but you can accomplish a lot more by wearing that metaphorical belt from day one, before your pants hit the floor.

Start by tracking where you are right now – what you have in your accounts, what you owe, what’s going out, what’s coming in, what’s coming in later, and when you’ll need to pay bigger bills or yearly fees.

That knowledge sweeps away uncertainty and brings you confidence. You’ll know where you are right now and what’s coming up – and that helps you yourself avoid the famine zone in the first place.

Life will still throw you a few surprises (I like to call them tests of resilience), but when you begin tracking your current numbers, you’ll be surprised at how the frequency of those surprises goes down.

Start Tracking Where Your Money’s Going

Freelancers are smart people – that’s why they get the jobs and command the rates they do. But even smart people make poor decisions they later regret, especially when they’re not paying attention to the data.

That data is where you currently spend your money right now. Untracked and unnoticed, dollar bills fly out of your bank account like Superman, faster than the speed of light, because every purchase you make is driven by how you feel at the moment.

Nothing wrong with that. And few people want to live their life by the rules of a strict, inflexible budget. (You don’t have to, either.) But you’ll find yourself in a much stronger financial position when you’re aware of your spending data.

Start keeping track of where you’re spending your money – yes, on a daily, transaction-by-transaction basis – so you can see how it all adds up and whether you’re happy with how it’s working out. When you have the data, you’ll be able to make adjustments in how you want to spend your money and what you want to spend it on.

You’ll be happier and have more of what you want.

By the way, when you track your spending, make sure to be clear about the money that leaves your hands. “CASH ATM $50” doesn’t tell you whether you spent that money on books, clothes, coffee or the plumbing guy, and you’ll want to know that down the road.

Make Short-Term Financial Goals – and Write Them Down

Remember what I mentioned about unchecked decision-making being based on your emotions and how you feel at the moment? That state particularly affects freelancers – our rapid-fire work environment and carefree lifestyles often lead to hasty spending.

The upside of being a freelancer is that you’ll often have the chance to spend money on fun things and experiences. The downside of freelancing is that you can lock yourself into an experience of not having what you really want.

Maybe it’s a new, high-end laptop. Maybe it’s $2,000 in savings. Maybe it’s a trip to a conference. All those things you “wish you had the money for” but don’t?

You may actually have more money than you think.

By setting short-term financial goals and putting them in writing, you create a psychological anchor that begins affecting your future decision-making and impulse spending. You’ll have more control over your life.

Think about it: The simple act of writing down “new laptop – $1,500” and sticking that where you can see it all the time means that when new money comes in, you’ll likely decide to set some of it aside for that goal rather than spend it on something else.

Check Your Patterns – What Needs Changing?

Everyone has a unique spending and saving pattern. It developed through a number of different influences and evolves over time.

How your parents spent their money, what your friends and peers do with their cash, even your opinions and beliefs on what it’s “okay” to spend money on… these are all examples of influences that created your money psychology.

Some of that psychology might be helpful to you. But some might not. And until you examine your spending and saving patterns, you won’t know what needs changing.

Every part of your money psychology has a reason behind it. Take a look at your spending and saving habits. How do you spend, when do you spend, and what do you spend on? How do you save, when do you save, and what do you save for? Think about why, too – why do you spend? Why do you save?

As you think about these questions and your answers, ask yourself if your spending and saving habits are serving your goals or getting in the way.

If it’s the former, pat yourself on the back. But if it’s the latter, consider what you might need to do to change it.

Find A Way to Stick to It that Works for You

Becoming financially smart and properly managing your money only works when you strive to make it a habit – or make it “enough of a habit” that your financial life starts to move on an upward trajectory.

That’s why it’s a good idea to think about your own patterns of habit-building in other areas of your life and pick an approach that tends to work for you.

Maybe getting accountability through a friend helps you stick to a plan so you can create a habit. Maybe you’re a “daily bit” person, who likes the routine of doing a little bit every day. Maybe you’re a list person, who can stick to anything as long as there’s a Post-It note attached to your computer screen.

Only you know what works best for you. And if you pick that way – and put these relatively simple habit changes in place – you can enjoy more of the feast and less of the famine.

Here are some of my favorite money management books, and I promise they're interesting, enlightening and easy to read – they're the sort of books I call life-changers.

All the Money in the World: What the Happiest People Know About Wealth, by Laura Vanderkam, taught me the value of asking, "What ELSE can I buy with this money?" before spending.

Debt-Free Forever: Take Control of Your Money and Your Life, by Gail Vaz Oxlade, has easy, proven techniques to get rid of what you owe - yes, forever.

The Money Book for Freelancers, Part-Timers, and the Self-Employed: The Only Personal Finance System for People with Not-So-Regular Jobs is a great match for almost every freelancer out there.

Post by James Chartrand

James Chartrand is an expert copywriter and the owner of Men with Pens and Damn Fine Words, the game-changing writing course for business owners. She loves the color blue, her kids, Nike sneakers and ice skating.