Feast or famine, folks. The struggle is real.
If it seems like your bank account is either flush or completely empty, you’re not alone. The freelance financial life can feel like a roller coaster.
Clients can take months to pay, steady work can dry up suddenly, and unexpected expenses can wipe out your savings. (I’m looking at you, laptop.)
The main problem with the feast or famine cycle is obvious: It’s nearly impossible to budget. But there’s a more insidious problem with it that specifically affects creative professionals.
If you’re stressed about money, you may end up making decisions that cause your business and art to suffer.
You’ll take jobs that aren’t ideal just to weather a dry spell. You’ll put up with awful clients who treat you poorly because you can’t afford to drop them. You’ll be too stressed about rent to concentrate on producing your best work.
There are a couple ways to get around the feast or famine cycle.
One, of course, is to have a day job or a partner who brings in a steady cash flow. But the long-term solution is to manage your cash flow in order to smooth out the roller coaster and strengthen the health of your business.
If you can’t figure out how to roll with the feast or famine cycle, you’re going to have a really hard time making it as a freelance writer.
But if you’re ready to hop on that roller coaster, make sure you do these three things to help your freelance finances survive and thrive.
1. Keep your business and personal finances separate
Even if you’re just starting out and only have one client, you need to start treating your writing business as a business. That means opening a separate checking and savings account to keep your business and personal finances separate. If you use PayPal to collect payments, set up a business version of that, too.
Not only does this tell the IRS you’re serious about operating as a business, it also keeps your business income and expenses from mucking up your personal cash flow.
My business checking account is with the same credit union as my partner’s and my joint checking account. Every payment from a client is deposited directly into that account, rather than into our personal account, and every business purchase is made with my business debit card.
My business account is sacred. I treat it like it’s my boss’ money — because it is! If our personal account is running low and it’s still three days from payday, I wouldn’t just whip out my boss’s company credit card for some sushi. Instead, I make beans and rice and wait for payday.
2. Pay yourself a set salary
“Payday?” you might be asking. “But aren’t you a freelancer?”
One of the biggest complaints I hear from other freelancers is that they miss having a set salary they can depend on.
I say, why not give yourself one?
From the beginning of my freelancing career, I made the decision to keep myself on a twice-monthly pay schedule rather than just depositing every check I got into our personal account.
I have my credit union automatically transfer my “paycheck” from my business account to our personal account on the 1st and 15th of each month, which makes budgeting our personal finances way less of a headache.
I also put about 35% of every check my business receives into a business savings account, and keep that money for taxes and as a rainy-day fund.
(Nicole Dieker has a great discussion of how much she saves for taxes in one of her latest Tracking Freelance Earnings post.)
If I have a really flush month, I may put extra into the savings account. If I have a lean month, I may pull a little bit out in order to make my salary.
Having a business savings account automatically spread the feast out into the famine.
If you deposit a huge check into your personal account, it will probably have all disappeared by the next lean month. But if you deposit it into your business account and pay yourself salary from it, it’s spread over the lean times. Even though your next client may be late on a check, you won’t be late on your rent.
It will take some time to build up a buffer in your business account if you’re just starting out. It took me about a year us a full-time freelancing before I had enough of a buffer to not worry about making my paycheck.
3. Give yourself a raise
The trick to building up a financial buffer is, obviously, not to drain your business account every time you pay your salary. Instead, try to strike a balance between what you can afford to pay yourself (after taking out money for savings) and what your personal budget needs.
When I first started freelancing, that amount was $500. Of course, I was making up the rest of my half of the expenses by waiting tables — but only until I built up enough of a buffer to give myself a raise.
Every time I notice the number in my business checking account is starting to outpace my salary, I know it’s time to give myself a raise. I added in $100 there, $200 there — and today I pay myself $1500 twice a month.
Raises don’t always have to come in the form of a salary increase. Once I hit the $1500 mark, our personal finances were dialed in. So instead of contributing more money to our personal account — which we’d just end up spending on sushi — I bumped up the amount I was contributing to my IRA.
Another way I’ve given myself a raise is by taking on less client work. Doing so let me “raise” the amount of time I had to work on fiction.
Of course, there are business things you can do to beat the feast or famine cycle, too, like consistently marketing yourself, seeking retainer arrangements, and creating passive income streams.
But I’ve found getting my financials in order to be one of the biggest creators of stability in my freelance career.
I’d love to hear from you. How do you deal with the financial uncertainty of making a living as a writer? Leave a comment below!
