Planning to quit your job and start freelancing? Hopefully you’ve started saving a freelance cushion (financial buffer) to help you deal with the ups and downs in income. A freelance cushion is something I’ll write about more in the future, but the short definition is that it’s a non-emergency living fund.
Today, I’m going to talk about doing doing a “dry run” to prepare you for your initial drop income. A side benefit of doing a dry run is that you’ll end up saving extra money for your financial cushion.
How to do a financial dry run:
0. Start by getting your other financial people on board (spouses, partners, people you live with who will be affected by this). If they’re not on board with the dry run, then you need to talk with them more about the implications of your freelancing on your lives, on your finances, etc. Freelancing is a big step, not just for you but for the people you share your life with.
1. Start by imagining that you’re currently a freelancer, freelancing to your heart’s content. If you’re longing to get out of a job, this is probably something you’ve already been doing.
2. If you have a budget, this is a great time to get it out. Otherwise, look through your bank statement from the last month (or last 3 months as an average). Identify what’s critical and fixed–rent, minimum debt repayment, phone (since you won’t give it up for the dry run anyway), etc. Next, identify what’s important but potentially flexible–food budget, dates, etc. And finally, identify what can be given up. This may include your clothing budget, your entertainment budget, your free money.
Come up with a rough sketch of where you can cut costs. Add up what your bare minimum is. Compare this to any money you plan to be receiving even once you start freelancing–maybe your spouse or partner’s income.
3. Get into the mindset. The mindset you and the other people from your household who spend money needs to be that you’re having a tight month freelancing and need to get by on as little as possible.
Your goal in all this is to find places where it makes sense to cut costs in your own life. No book, no blog post, can tell you exactly where you’ll be able to cut costs. It’s something you have to do for yourself, we can only hint at areas. You may even be able to identify some that you could cut but don’t want to cut until it comes to hardship. That’s fine. It’s best to cut as much as you reasonably can during this run to give you a taste for it–but doing things like reducing your cable package have long-term effects you’d need to sort-out afterward, so it makes sense not to cut them if you don’t have to.
4. Examine your reactions and responses. How did it feel to cut things out? Were you able to find a lot of places to save, or did you want to preserve the type of life you’re living right now.
I’ll be honest, if you want to start freelancing and want to maintain the same style that you’ve grown accustomed to, you’re going to have to save up a lot of money beforehand because you’re likely to start off slowly. You may even need to evaluate if you’re ready to give up the comparative security of regular paychecks.
The good news is that one of the best ways to build up that cushion is by starting to freelance while you’re still working. Sometimes it’s insane–like this week I’ve gone straight from work to my computer for various projects that didn’t go according to plan. But it’ll help you save money, build a client base, and get an idea of what you’re able to do.
Preparing for Freelancing
The truth about freelancing is that you can never be 100% prepared for it. But just as you can get comparatively used to a pool before wetting your hair, you can warm up to it.
So if you want to start freelancing, I encourage you to test the waters. Give it a financial dry run, save the money towards your freelance cushion. Try working on the side to build up client list, learn where to get leads, etc. These steps will pay off down the road.
This post was, in part, a response to Blunt Money’s post about preparing for a dramatic drop in income (and partially inspired by looking over last year’s finances).
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I think I was pretty lucky in my freelancing: I started out of grad school, so we didn’t make any money at first — but we were already living on nothing! So it’s been nice as things have taken off. But you are right about being prepared for things to start out slow and realizing that it will be a big drop in income when you switch from a full-time job to being self-employed.
Miranda’s last blog post: Do You Have an Emergency Fund?
I anticipate that I’ll have to do this one day when I start going into business for myself.
Sistah Ant’s last blog post: shopping!
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