But how can freelancers do that?
And should they?
Where’s the Payroll Department?
When you consider a more conventional nine-to-five kind of job, most people get paid via direct deposit from their employers. They may get a pay stub every couple of weeks, but the money “magically” appears in their bank accounts. You can set it up with your bank (or sometimes with your employer) to split the incoming funds so that a portion is automatically deposited into a rainy day savings account.
That’s typically not how it works with freelancers. We usually get paid when a project is completed or in installments along the way. There isn’t a conventional payroll department, per se, and your income can be sporadic. Freelance income oftentimes isn’t stable or steady.
Still Need a Rainy Day Fund
Arguably, because of this natural ebb and flow when it comes to freelance income, it may be even more important for freelancers to maintain a rainy day slush fund. This emergency fund will help you ride out those weeks or months when business is slower. Perhaps something happens to your house and you’re suddenly facing a large repair bill. Whatever the case, you should have a decent amount of money saved up for that purpose and you should be planning appropriately for your retirement.
Again, remember that you are not going to be getting any sort of employer-funded retirement plan, because you are the employer. And so, what it really takes is some personal discipline. You simply have to take a portion from each invoice, and set that money aside in your rainy day fund and your retirement fund. This is assuming you want to adhere to the “pay yourself first” mantra of personal finance.
Working on Personal Projects
But there’s another way to think about this. While you may want to “pay yourself” in a monetary sense, you may also want to “pay yourself first” when it comes to the projects that you do.
When you are working with your client, the focus is on the client. You are addressing his or her needs, helping to achieve his or her goals. That’s the way it should be. That’s how it works with financial advisors, graphic artists, hairdressers, and writers. However, one of the non-monetary benefits of freelancing is that you can afford yourself the time to work on your own personal interests and personal projects too.
These may not reward you in a monetary sense (although they certainly can), but they can reward you in the sense of personal fulfillment and satisfaction. Since you are not working with a client, you really are free to “do what you love.” Ultimately, this can pave the way to your ultimate exit strategy too.
What are your thoughts?