Story time!
I have a friend who has a freelancing wife. She works in a very niche area of the industry, whereas he works at a company doing a completely different job, earning (my guess) around $40,000 a year. She originally used to pull in $60,000 a year, which made them a comfortable $100,000 income family in a low cost area.
She became a freelancer only because she was laid off from her job and was desperate for other options. For about 2 years, she scored a month to 3-6 months at a time, working as a freelancer. Then the recession hit.
Within 2 months, they had maxed out their credit cards and line of credit and had to refinance their home to take out the equity they’ve been paying into it for the past 2 years.
NOTES ABOUT THE SITUATION
As a freelancer, she doesn’t negotiate
My guess is she only asks around $30/hour which is $60,000 a year if she worked full-time (which she did not).
I think she worked a total of 12 months in the past 2 years, which equals out to $60,000 in total, or $30,000 a year.
Generally speaking, as a freelancer, you should shoot for asking double what you earn as a salary, if not it isn’t worth it.
The reason I say this, is because you generally only score 1-6 months at a time, sometimes only 2 weeks, and if you ask for what you are worth for a full year, you are essentially handicapping your income in half.
If you can’t ask for double your salary as a rate, then you should consider not becoming a freelancer, unless you can guarantee that you can work a full year.
How to calculate your gross rate per hour:
Take your salary, divide it by 2000, and that’s your gross rate per hour.
She never claimed any business expenses
The most wonderful part of owning a business is being able to claim SOME of your expenses. I’m not talking about going crazy or doing anything illegal but claiming your cellphone, your gas or mileage and basic office supplies are not out of the ordinary. She did none of that and they’ve lost the tax benefits from the past 2 years.
(Yes I’ve already informed them of what they can deduct as expenses and directed them to the tax agency website.)
They didn’t save a penny
Not when she was working full-time at the company, and certainly not when she became a freelancer.
No emergency fund, minimal savings that lasted perhaps 2 months.
They didn’t watch their expenses
It was a la-di-dah existence for them, floating along on a fluffy white cloud.
They actually upped their expenses and enrolled their kids into expensive hobbies like horse riding, when she was still working and making money as a freelancer.
Then zilch, all the contracts dried up without a peep.
It’s been a year now now that there hasn’t been any work, and he can’t afford to keep up with all of their bills on just his $40,000 income. They’re short $30,000 (gross) to just cover their bills and break even.
The refinancing on their house? They took out $30,000 but have since blown through that (hey, it’s been a year!).
They are VERY strapped for cash.
Freelancing is not an easy existence
The top 3 tips I can give as a freelancer is:
a) Save not 3-6 months but 2 years of emergency funds
It might seem excessive, but 2 years is really the bare minimum if you consider that you might run into real emergencies while trying to live off that emergency fund as a makeshift income for your family.
Let’s say you spend $2000 a month.
If you save $6000, you have approximately 3 months, right?
Well what if at the end of the first month ($4000 left), you end up having to fix your car and spend $2000 doing so? You are now at $2000 left in your Emergency Fund, or a single month.
Alternatively you can think of it this way: Save 1 year of emergency living expenses and save another “year” of the equal amount of emergency expenses for actual emergencies such as your car conking out on you.
This is especially critical for freelancers who can go for a year and a half without working on a contract, before realizing they need to pick up permanent employment.
b) Keep your expenses on a low and on an even keel
Sure, at $30/hour you’re bringing in $4800 a month, or even double that at $9600 a month, but if you fluctuate your spending to keep in line with your income, you’re going to get financially seasick.
Any money you make should cover your essentials (plus a little reasonable extra) and the rest should go immediately into savings for that rainy month or year.
This is the main reason why I (enjoy) keeping a budget, tracking my expenses, looking at what I spent last year versus this year, and keeping tabs on whether I am inching towards lifestyle inflation for no justifiable reason.
(Traveling by the way, is a totally justifiable reason for spending more in a year than expected. I can never get my youth or my time back, so I had better make the most of it if I am financially able to.)
There’s no need to go extreme (yes, I do know that some people consider my budget of $1000/month for personal expenses to be extreme), but go as low as you feel comfortable doing.
Use your head.
Setting an even budget for each month and considering the rest of your income as a bonus for your savings is the best way to keep things rolling smoothly.
c) Keep looking for other ways to improve your situation and make income
Being on the bench is not the time to decide to take the time off and go on a vacation or study your navel on a daily basis.
If you don’t have the money, pick up odd jobs here and there to make a couple hundred to help lessen the slow leak of money out from your bank account.
Even when you do have a job, don’t close yourself off from opportunities to work at a part-time job that will help bring in some extra cash. Even $50/month is something.
When I am on the bench, I definitely take time off to go on vacations (if BF is also free to travel with me), but on the side, I’m still hustling for some side income. I consult for a couple of hours on other projects, I look for odd jobs to complete and I keep thinking of ways to make some extra income without actually signing employment papers.
I also do a little career improvement, such as brush up on my resume, review my notes from other projects and organize them into neat little folders, and do organizational housekeeping that I might have left to collect dust while I was working.
If I have time, I read about my area and try to learn something new.
If my job situation ever dried up (yes, it could happen!) I’d also want to know what job I could get that would fit with the skills that I have.
So what do I do?
I go job hunting to see what’s hot and what’s out there.
I’m never too concerned with salaries of those jobs, only because I already know my expenses for the year, so I can hazard a guess that I’d need at a minimum of $30,000 gross to clear my bills and save some cash on the side. It’s a really liberating and secure feeling to know what you need at a bare minimum to live and be comfortable.
I also start calling up old colleagues, friends and I put out my feelers again.
Nothing really comes of it, but I like tickling my networks. It’s also nice to get out and spend some money on a dinner or coffee, while doing something constructive for your future. If I were left to my own devices, without financial inhibition I’d probably blow through all my cash, shopping everyday! (Just kidding. Kinda. I’d feel too financially irresponsible and guilty to follow through on that.)
Just a girl trying to find a balance between being a Shopaholic and a Saver.
I cleared $60,000 in 18 months earning $65,000 gross/year.
Now I am self-employed, and you can read more about 
That sucks for her… did she take your advice or suggestions? I'm not a freelancer but I think it takes some guts to be one (and I totally admire freelancers for it) and I think it also definitely takes budgeting skills… like you gotta have those budgeting skills down PAT or else…!
I don\’t know if she did or not. I won\’t really find out until tomorrow..
Oh, and they can file amendments to the taxes for the past 2 years to reflect the things that they did not deduct. They might have some money coming back to them.
My recent post It’s Your Fault That You’re Still Unemployed
Is your friend related to my unemployed friend? Another reason why she should charge double is because the salary that she received at a full-time job was not the only part of her compensation. If she factored in what her employed paid for social security, unemployment insurance, healthcare, life insurance and retirement benefits on her behalf, it could add as much as another $15K-$20K on top of her take home salary. As a freelancer the company that she contracts with does not pay these costs. So she might think that her asking rate is high when it is not. That is why they get freelancers. She needs to bump her rate up by at least $10 an hour.
My recent post It’s Your Fault That You’re Still Unemployed
HAHAHA I don’t know if your friend is related to mine. I’m pretty sure she isn’t, but they sure sound the same.
I absolutely agree that we have to take care of all the benefits on our end as a freelancer, so we have to ask for more to cover what a company would normally give us.
As someone with a fluctuating income, it's a necessity to save that extra cash in a separate account for the slimmer months. Also, hustling and getting creative with ways to bring in extra cash is really important! I think your friend needs to start thinking of taking on a part-time job, even something completely non-related, as she builds back up her freelance accounts.
I ran into the same problem years ago. One long term contract that I didn't realize wouldn't go on forever – I should have been marketing all along. I guess the only hope is that it's not a failure (merely a lesson) if they've learned from it.
You live and you learn 🙂 I always apply to stuff while I am working just so I\’m on their mind.
This may sound like another scare tactic, but it's better to be safe than sorry. I love the way you presented the items here as they can happen to anyone, anytime. A lot of people these days don't prepare for what tomorrow may bring simply because they think it's not worth doing so in these uncertain times. When you're freelancing and you only have yourself to depend on, the more you need to have a solid plan B when things go wrong. It's just practical.
My recent post Top 10 Reasons Why Customers Ignore Your Web Site
I agree that being safe rather than sorry is always a good thing. Working towards a lofty goal is better than saying you can make do with less money in your EF fund for example.
I also think people should set deadlines for being a freelancer. A year and a half, or two before throwing in the towel.
You hit on one of the big problems a lot of freelancers have here — she didn't treat it like a business. No expense tracking? That's just tragic.
So many freelancers I know have had a similar thing happen — they had a few clients and were making the income they needed… and then that editor got laid off, that publication folded…and then they didn't know how to market themselves and find more clients, and went broke.
In this economy, that's the main difference between being a successful freelancer and losing the house: Marketing your fanny off.
The other is being flexible about the kind of writing assignments you're willing to take, and open to some of the new writing forms that are emerging. I recently sat on a panel of thriving freelancers at a journalism conference, and that's what we all had in common — people offered us some weird writing gigs of a type we hadn't done before — podcast scripts, indexing books, blogging — and we said, "Sure, I'll try that!"
Every editor I worked for lost their job in the past two years, but today I'm busier than ever — I'm officially overbooked at this point. The reason is marketing, marketing, marketing — online, in person, you name it.
My recent post 10 Reasons Why You’re Bombing in Social Media
Yep. It\’s something they just didn\’t think about. She thought it would be like a job, 12 months a year at the same salary.
I LOVE your advice. I’m not sure what you mean by “score” though– probably “get jobs”? Lol, probably would know if I was a regular reader right?
As a full time (no other job) freelance writer, I completely agree with just about all of your advice. While it would be GREAT to have 2 years of expenses saved up, I feel it’s close to impossible, though, and wouldn’t want any newbs out there to be discouraged (it sort of reminds me of those couples who wait til everything is perfect to have a baby, it just doesn’t happen).
Another thing- not taking write offs? CRAZY!!
That's too bad – it seemed that she sort of fell into freelancing rather than planned for it appropriately. Even so, she should have done the research on basic things like salary and expencing. I have heard in USA you should double your rate just to break even, even if you DO work all year long, because benefits and such make a big difference. Probably a little different in Canada since you don't have the health insurance fiasco we do.
That\’s right. She fell into it as a desperate move from losing her job. They never planned for it and were just not informed about the market, nor the longevity of the contracts she seemed to be getting here and there.
SP, the value of benefits depends on your health and your family situation, as well as your age. I definitely need NOWHERE near double my salary as a freelancer to break even. It also depends on the state. I am single, in good health, and young. I live in a state with low insurance rates, and so I pay under 100 dollars a month for private individual health insurance that is comparable to what I had under a large company plan.
When I worked for a company, the main benefit was being able to pre-tax dollars into a 401K but because the government limits what you can contribute pre-tax, the savings there are, at most, a few thousand dollars. The company also offered reduced prices on childcare and life insurance, but those things are basically worthless to a young person with no kids.
When you say you don\’t need double your salary to break even, do you mean that if you earned $50,000 a year, you would be fine with earning $25,000?
I\’m only curious because as a freelancer I don\’t need double my SALARY per year to be fine, what I need is double my original RATE per hour so that when I don\’t work the whole year, and might only pick up 2 months worth of work in 12, I still make enough money to cover my basic bills for the year, pay my taxes and to save a little.
I don\’t need a lot to live on either. I\’m on about $1000 – $2000/month depending on if I work and if I travel (and where), which is about $30,000 a year (let\’s say).
If I worked a month and a half, I\’d cover that amount. But that\’s the reason why I suggested double the salary, because freelancers generally only work half the time.
I too, am young and I don\’t need health insurance here (subsidized), I pay for my own dental and medical as well, but as I get older, I\’d have to be more careful that I have to pay into a plan like that, plus account for inflation at 3% a year.
So double your salary, covers health benefits, your retirement savings, general savings and all the things that come with a company package that you have to pay for on your own.
Including inflation, making $30k today is not the same as making $30k in 10 years either.
Ahhh…I'm not a traditional freelancer. I actually know VERY far in advance what my income stream and schedule will be (sometimes a few years in advance), and basically have more stability than my friends in regular jobs, actually (my industry is recession proof).
Also, frankly, most big companies I've worked for didn't offer great benefits. Seriously, the benefits packages are not that good at the majority of companies, especially since the recession. 🙁
Wow that is AWESOME. I think it\’s great you know what your schedule is years in advance *envious*
Recession proof? It sounds like the government or porn 🙂 just teasing.
But you get good benefits as a freelancer? How does that work?? I don\’t get any benefits.
Another excellent post! With some frugality and creativity you can weather the storm!
Absolutely. Things change, and you have to just be flexible to roll with the punches.