All of us have a way of handling finances in order to ensure that there will be a little something left in case of emergency or unforeseen circumstances. This is an easier task for company employees as they can compute with certainty the amount of money they will get each month as well as the regular expenses. For freelancers, however, it is a totally different world.
Most freelancers cannot determine the exact amount or even an estimate of their monthly income. It all depends on clients’ needs and demands as well as the timeline involved in the project. The expenses also vary due to the added consumption on electricity, internet usage, and equipment maintenance.
However, if you’ve been freelancing for a few years and fairly successful at it, you’re probably earning a higher amount than most regular employees since you don’t have to spend money on transportation, buying food at the office or eating out, new clothes to wear, and a lot more.
What have you done with the money that you were supposed to allocate to those items? Was it all spent on other expenses or did you keep it for future needs?
Remember when you were reluctant to let go of that office job because you don’t want to lose the regular pay each month?
Freelancers do not have job security. It means you can be earning good money today and lose your clients tomorrow. The freedom that you enjoy comes with some insecurity. This uncertainty can be balanced by having enough saved for a rainy day. It provides assurance that you will be able to sustain your lifestyle even if there’s no cash coming in for a few months or if you are between clients.
The extra money also gives you an opportunity to check out other ways to earn or add to your financial assets, one that will not take up too much of your time. After all, you can only cram so many projects and clients in a month, but having passive income means you can earn extra from other sources while you are on another job or even while sleeping.
When you think about alternative sources of income, it has to be something that will protect your capital and generate income that is higher than the rate of inflation. This way, you can ensure that your money will be enough to meet whatever needs may arise in the future.
If you spend a lot of time online, you can opt for stock investments, since you will be able to monitor the movement of your stocks. There are also other choices like mutual funds and UITFs if you don’t have time to constantly pay attention to it. Or you can opt for low risk investments such as government bonds and those that will give you compound interest for a specific time that you invest a certain amount.
Real estate properties can generate rental income and as long as you’re getting a higher amount than the monthly amortization, this will eventually add up.
Of course, you can also use the extra cash for other things such as buying gadgets, a new car, a house, and travel expenses; but these are things that will not give you money as return on investment.
It does not mean, though, that you should not spend on luxuries. You just have to learn to allocate your income properly.
I have been freelancing full time since 2013 and I’ve found a balance between spending on what I consider luxury versus saving for the future. What works for you? Comments are welcome.