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Freelance Money Matters

freelance-money_72.jpg I wish I knew then what I know now about how to deal with money as a freelancer. I think I've done all right as far as it goes up 'til now, but I had to learn things as I went along, sometimes not getting as early a start as I could have, which is a shame. So I've put together here a few items to give you a leg up. Of those suggestions I've listed below, some are common sense, some we know what to do but put off, and some are "why didn't I think of that sooner?!" Some of these pointers are broad-based and could apply to anyone, freelancing or otherwise, but are particularly helpful for those living the freelance lifestyle, especially if one hopes or expects to go at it long-term. Savings for Living Regardless of your living situation (single, co-habitating, married, providing for dependents), it's smart to save in fluid funds three-to-six months worth of expenses. Freelancing can be a crazy roller coaster ride, and having that cash safety net for the slower periods comes in awful handy. It relieves stress, allows you to make more focused, relatively desperation-free choices about what kind of work to pursue, and when and how to go after it. Pay off your credit card every month Credit cards are convenient and great for keeping track of business expenses. Many credit cards offer cash back for all purchases, so make a lot of sense, especially for large expenditures and investments like computers and studio equipment. May as well take advantage, providing you can be disciplined enough to pay it off every month. Interest is a killer, so avoid it at all costs. Line of Credit For those times when cash flow may be a problem, a line of credit is invaluable as a second safety net. If you're going to pay interest, make sure it's interest you can write off on your taxes, which a second mortgage like this allows. To qualify, you'll need some equity or collateral, so you'll already have to be in debt with a first mortgage, so this will not apply to everyone. There's nothing wrong with renting, especially if you're younger and just starting out. Personally, I preferred owning a home and building up equity as soon as possible, but to each their own. You can use a line of credit to expand your business by purchasing equipment to keep current, or for promotional purposes. In the end, even if you never tap into it, a line of credit is a good idea for peace of mind, at the very least. Buy used cars If you drive, and unless you're freaky for autos, never by a new car. It's a waste of money to buy new, as a car depreciates considerably as soon as you drive it off the lot. Though as a freelancer you may be called on to work on site, much of your time can be spent at home. Either way, there's no sense having a sparkly new vehicle sitting and gathering dust at home or exposed to the elements in a downtown parking lot. If you do drive for work, business meetings and to pick up supplies, make sure to keep track of your mileage, which can be claimed. And when the old car has hit a wall, donate it to a worthy cause like a Veteran's Donation Program like we have here in Minnesota. Then it's time for the next used car. Long Term Savings Saving for retirement is especially important for the freelancer, for reasons mentioned above, and more. Being self employed, you have to create your own equivalent of a 401K account, and no employer will be offering matching funds. I sure wish I'd gotten an earlier start on this, as I'd be in even better shape had I socked away a few bucks here and there when younger and beginning my career. Take advantage of the power of compound interest. This may seem like a boring subject for artists trying to live a creative life, but if you're attentive to it and follow through, you can buy yourself security and autonomy. If you're twenty years old and can set aside even $25 a month, it's better than nothing, and can add up. And if you've waited or couldn't get an early start, it's not too late, just begin now setting aside as much as you can spare, and envision painting and drawing in your retirement without having to worry about monthly expenses. Additional Freelancing Tips I've plenty more I could share about rates, estimates, how to set up a company, licensing and copyrights, etc., but it's been covered comprehensively and in good detail at other blogs, such as Cedric Hohnstadt's and Tom Richmond's MAD blog. Check out these links and their "Business of Freelancing" category pages for some great advice and insights.