Starting as a remote working freelancer, our finances might seem unstable. The influx of projects may leave us with high income this month, but relatively lower income the next.
With fluctuating income, what should we do to reach financial stability?
Step 1: Bill Your Worth
Many believe that underpaying ourselves might lead to more clients and more income for the future. This may be true to some extent, but this leads to new freelancers burnout because of so many projects and so little income.
The excuses of our client’s repeat business or “limited budget” might be daunting. But you must bill our worth. We must treat ourselves as a business.
Find the benchmark price of your niche services and charge accordingly. But of course, you must also justify that your services are worth the price you are charging them.
Step 2: Getting Paid on Time
Just like new business owners, freelancers might confuse cash flow versus income earned. In accounting, the business owner recognizes the income when it is earned.
Meaning, the billable project you FINISHED BY TODAY is considered INCOME EARNED TODAY regardless if you get the payment next month.
With this, it is possible to have high-income but still struggle to pay the bills. It is best to create a system of collection safeguards to avoid this cash flow trap.
Also, assuming you registered, a separate account should be opened for taxation purposes. This is to ensure that you don’t scrape off money when tax season comes.
Step 3: Manage Lifestyle Inflation
Now that you are earning well above, we tend to increase our spending as we increase our cash flow. We are stuck on a Hedonic Treadmill where we are not truly satisfied. And ultimately yearn for more.
As we get accustomed to a higher degree of lifestyle, a sudden change in cash flow might ensnare us to a debt trap to maintain our lifestyle.
The problem starts when our level of income cannot cope up with it anymore. For this problem, we must budget our spending.
We can SLOWLY add new “comforts” in life when we get better income to enjoy the fruits our labor. Also, this avoids getting accustomed to the lifestyle to early. Preventing the hedonic treadmill.
Conversely, we should cut down as much “comforts” as we can ALL AT ONCE when we get lower income.
Step 4: Create an Emergency Fund
It is also imperative for freelancers to save up in case of a rainy day. Creating an emergency fund with a minimum of 6-months worth of expenses is ideal.
This is how you can create one.
Step 5: Savings for Investments and Retirement
Lastly, you have to build your retirement fund. An automated debit to an untouchable savings or investment account is ideal.
You can invest your money in basic UITFs or even “PERA” accounts (the Philippine version of IRAs).
For the budget constrained, the Philippines now has UITFs for as low as P1,000. You have no excuse to save up.
Being a remote working freelancer has numerous perks, but with this implicit freedom comes the responsibility for our financial dreams.
I hope this article provided help in reaching yours also.