The rise of the freelance economy and the availability of gig work has been nothing short of amazing, and many people have taken advantage of the changes. Some former corporate workers have parlayed their skills into lucrative freelancing careers, living life on their own terms and making their own way in the world. Others have used the gig economy to supplement their full-time incomes, boosting their savings, improving their lifestyles and building for their future retirements.
No matter which category you fall into, it is important to build financial stability into your business plan. Freelancing and the gig economy have their benefits, but predictability is not one of them. It can be difficult to determine how much you will make from month to month, and that can make budgeting a real challenge. If you want to succeed in this brave new world, you need to take charge of your own future and safeguard your financial stability. Here are five tips to get you started.
1. Prioritize Debt Elimination
Going your own way can be liberating, but it can also be frightening. Without the stability of a steady paycheck or a boss to fall back on, freelancers need to take extra care with their finances.
That is why debt elimination should be a priority for freelancers and others who rely on the gig economy to make ends meet. Every dollar saved on interest in one more dollar that can be saved for the future or put away for the lean times. Part-time freelancers who also work full-time jobs may also want to pay off their debts before they give up their day jobs.
2. Do What You Can to Boost Your Credit Score
Borrowing money can be tough for freelancers and those who rely on the gig economy. It can be difficult for these non-traditional workers to substantiate their income and prove that they are good credit risks, and that means they need to work extra hard and take even more care than most.
It is important for freelancers to know their credit scores, and to do what they can to keep those scores as high as possible. From paying down debt to automating bill payments, a few smart actions now can pay big dividends later.
3. Know Where You Stand
Performing an annual financial assessment is always a good idea, but it is an absolute necessity for freelancers and business owners. Calculating financial assets and debts and assembling a comprehensive personal balance sheet may not be fun, but it is important.
Once that baseline balance sheet is in place, freelancers and gig workers can compare their annual results from one year to the next, making sure they are moving in the right direction and making course corrections as needed. This annual financial exercise is not the most exciting thing to do, but it can be one of the most valuable.
4. Be Smart About Budgeting
One of the biggest drawbacks to freelancing and relying on the gig economy is that the work, and the pay, are often unsteady. One month freelancers may be drowning in work ant struggling to get it all done. The next month work may be difficult or even impossible to come by.
Those ups and downs are par for the course, but they can present some serious budgetary challenges. That is why experienced freelancers are also experts at budgeting, savings, and coupons. Building a solid emergency fund is a must for any new freelancer or gig worker, as is putting money aside in the good months to cover basic expenses in the bad ones.
5. Develop a Smart Invoicing Process
Gig workers, in particular, must often juggle multiple jobs from many different clients, and that can make invoicing and payment a real nightmare. The invoicing process for traditional freelancers and business owners can be nearly as difficult, and that is why it is important to develop a comprehensive approach to invoicing and payment processing.
Freelancers and gig workers do not have to bring on accounts payable department, but they do need quality software that handles customer invoicing and tracks payment receipts. Automating payment reminders can help as well since it frees up more time for additional work and helps freelancers make more money.
Whether you freelance full time or do gig work to supplement your income, it is important to understand, and prepare for, the unique financial challenges this type of work can present. Doing your own thing and working on your own terms can be a liberating experience, and if you handle your finances right, you can enjoy all the benefits without the financial panic.