5 Steps to Combat the Financial Uncertainty of Freelance Work

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It is hard to beat the freedom and flexibility of freelancing, especially when you are stuck in your office cubicle all day. From that vantage point, becoming your own boss and trading your 9-to-5 life for life as a freelancer can seem pretty compelling, but a lot of those advantages go away when your regular paychecks disappear.

For those who are unprepared for the sudden shift, life as a freelancer can go from dream to nightmare pretty quick, especially if you do not have the earnings of a traditionally employed spouse or a huge nest egg of investments to fall back on. That does not mean, however, that you cannot make the freelance lifestyle work – it only means that a little bit of preparation might be in order. Here are five steps you can take to reduce the financial uncertainty of freelance work.

Step #1 – Focus on Attracting Repeat Clients

When you are working as a freelancer, you might end up spending more time chasing down new clients than actually doing the work, and that can increase the stress and financial uncertainty of this type of lifestyle. By focusing on attracting repeat clients, you can spend less time marketing and more time working.

Beyond the better use of your time, however, this focus on repeat clients could smooth out the financial bumps of the freelance world. A client who can provide roughly the same amount of work month after month can serve as a kind of financial base, one you can build on with additional projects as time permits.

Step #2 – Identify Seasonal Patterns in Your Earnings

When you work a full time salaried job you can predict almost to the penny how much every paycheck will be, but that is definitely not the case when it comes to freelancing. One month might bring a sudden flurry of lucrative projects and plenty of incoming cash, while the next month might see a dearth of activity.

Finding patterns in all this chaos may not seem possible, but many cases freelancers will find that there is indeed a method in the madness. They may find, for instance, that the month of April is almost always a high earning time of year, or that December is nearly dead. It may take some time for these patterns to emerge, but identifying them could be a big help when it comes to budgeting and money management.

Step #3 – Average Your Income

Whether there is a discernible pattern to your earnings or not, you will probably find that there is quite a bit of variation. Even if you take great care to please your steady clients, you will probably see that your total earnings differ from month to month, and that can make budgeting a real challenge.

One way to overcome that challenge is to average your earnings over time. Even if you do not know exactly how much you will earn each month, you may have a good idea of your annual earnings after a few years of freelancing. Averaging these earnings and giving yourself a monthly paycheck is one way to even out the bumps and make freelancing less financially stressful.

Step #4 – Adjust Your Discretionary Income as Needed

No matter what you do you will never be able to completely even out the unsteadiness of your freelance earnings. A sudden slowdown in the stream of work from your best client, a disagreement over payment or any one of a host of other events could send your monthly earnings spiraling, leaving you scrambling to pay the bills and ramping up the stress you thought you had banished.

You may not be able to stop those financial shocks from happening, but you can look for ways to overcome them. One of the best ways to adjust when you hit a temporary earnings snag is by ratcheting down your discretionary spending. You might decide, for instance, that a fancy anniversary dinner is no longer in the budget, and that a home cooked meal by candlelight might be a better and more frugal alternative. Coming up with creative solutions to keep your spending under control will come in handy and help you whether the occasional financial storm.

Step #5 – Build a Solid Emergency Fund

No one ever said that freelancing would be easy, or that giving up the security of a full time paycheck would be free of stress and uncertainty. No matter how hard you work, freelance income is unsteady and uneven almost by definition, and that is why it is so critical for anyone who works on their own to have a solid emergency fund in place.

Hopefully this emergency fund will have been established before you left your steady paycheck behind. In many cases a budding freelancer might dedicate a portion of every paycheck to the fund, biding their time and saving their money until the fund reaches a predetermined point. In other cases freelancers may have to fund their emergency savings on the fly, using extra income from the good months to put cash aside for the rainy day they know is coming.

No matter which approach you end up taking, having an emergency fund in place will be important, and building one is the fifth and final step of your five step plan toward reducing, if not entirely eliminating, financial uncertainty. By implementing this five step plan, you can greatly reduce the financial stress you would otherwise feel, so you can focus on building your freelancing business and wowing your clients.

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