7 Ways to Protect the Freelance Life / by Matthew Cook

I once heard that over 90% of US drivers think they have above average driving skills. Turns out, that’s pretty much true and the phenomena is called Illusory Superiority. We tend to be the first ones to excuse our faults and believe in ourselves. This is a good thing, but freelancers don’t have the luxury of wearing rose colored glasses. We have to find ways to measurably protect ourselves from our shortcomings, not just feel good.

While there are some really good resources out there that can inform you how to saveanalyze or fine-tune your performance, price your work, and get started, they don’t give you a lot of perspective from the trenches. That’s what I want to share: 7 ways to protect the freelance life–advice from the battlefield

  1. Choose a weekly or bi-weekly “salary” and budget your life around that income. It doesn’t matter if you run a family budget or shoot from the hip with monthly expenses. The big dark line to draw is living below your means. It doesn’t matter if you just received a $10,000 check. Don’t break the income rules you set. If you can’t be disciplined with spending in your personal life, you’re going to have even bigger problems trying to run a freelance business.
  2. Determine how much risk you’re comfortable with and find ways to mitigate it. I’m not very risk averse, but my wife is. Long ago I realized that I would be a 1-2 client freelancer with a side project or two. I can’t handle more–my roots go too deep with the friends I work along side. That means my biggest risk is losing a client. You can verbally agree with your partners as to what you will and won’t do when a relationship breaks down, but the reality is that you need to plan for a sudden cut in work and income. For me that means having a buffer account of $20,000 that I pay my personal salary from. All the checks get deposited there, and I pay my salary from there. It took a long time to hit that mark and discipline to not dip into it when things were easy, but it pays off during months of unpaid work or when I lose a job. I’ve even set up action points by dollar thresholds. If that account gets down to $10k, my wife and I have agreed that I have to start looking for traditional employment. Talk about motivation to keep the dream alive!
  3. Identify risks to your freelance business and plan around them. All businesses have cycles. Take the time to research the cycle for your industry and for your clients. Know when target clients will be looking to spend and know when they’re slow. You will get fired by someone at some point. Nobody starts a project expecting to burn bridges. It’s up to you to protect yourself and people contracting for or with you. Tie money out to money in. If you have contractors, write into your agreements with them that you’ll pay them when you get paid–then everyone push to keep the client happy together. Last thing, know your pipeline (or at least guesstimate it). How long does it take you to get a client from the first contact to the first check in your hands. Most freelancers under-estimate this. I used to say 2-3 weeks. It’s actually around 45-60 days. Signatures don’t count. Signed contracts don’t pay bills.
  4. Always have an exit strategy. I hate this one. I don’t want to work with other people or other companies let alone have a W-2 job. If I did, I’d be doing that, not contracting. You have to be willing to embrace the possibility that you’ll fail while also acting as if you won’t. For me this means making local industry friends, attending conferences, and talking to potential future clients–even when things are going great. This also means figuring out what a good client looks like. Good clients pay well and pay on time. Your best clients do that while also letting you do good work. Don’t get trapped by promises of better work or larger budgets. Cash flow is one of your biggest guarantees against failure. If your clients are threatening your cash flow, they’re threatening your ability to even be in business. 
  5. Save for taxes. You don’t want to get behind with the IRS. Get a good accountant and learn a little bit about tax code; at least know where you fall in the tax brackets. This will help you know what your maximum Federal tax liability is. Most people will remind you that taxes aren’t withheld by an employer, but what you may not know is that your employer actually pays some of your taxes. Employers pay matching amounts of your Medicare and Social Security when you have a W-2 job. When you’re self employed, you pay both portions. That’s right, you pay more taxes when you’re self employed–and you may be required to make quarterly tax payments. However, there are other things you can take advantage of such as a home office and a host of other tax write-offs. Again, get a good accountant. Save for taxes. 
  6. Save for yourself. American’s think they’re too broke to save. In most cases, that’s ridiculous. Take your future financial well-being seriously. You need to save for your own retirement, kids, cars, emergencies, homes, business assets, vacations, toys, and many many other things. You won’t have an employer-matched 401k, a company car, or an IT allowance. Save in bite-sizes (or byte-sizes–tech puns!). Utilize something like CapitalOne360 where you can have multiple cash accounts for free under one login with easy transfers. Only you can make yourself spend wisely.
  7. Run away often and make sure you have a plan for burnout. Plan time away and be real about the self-imposed constraint of being unavailable. You don’t have an office that opens and closes, and you don’t have a boss forcing you to attend meetings. Get used to saying “Sorry, I’m unavailable at 3p PT (6p ET)…” or “I’ll be away from December 21-25…”. Learn how much effort is too much and know what types of activities rejuvenate you. My wife and I run off to my conferences together or buy extra plane tickets and hotel nights for business trips. I write when I’m burned out, and I know making home espresso and running regularly help me manage stress and frustration. Reach out to friends and learn how to be open about your struggles.

Freelancing isn’t easy. It costs more money and effort than you imagine it will, and your failures hurt far deeper and longer than you most likely anticipate. Learning how to protect yourself is important if you want to make freelance a career choice and not just something that happens to you. I’ve been fired (multiple times), lost dream projects, and undergone months of unpaid work. I’ve also delivered great things, worked with amazing companies and friends; and freelanced my way through grad school, buying a house, and having a kid. The trick is knowing your limits and finding ways to support and protect yourself.