The biggest shock to my system when I started freelancing more than two and a half years ago was the weeks between checks. I couldn't believe it. How would I survive!
This continues to be a big struggle for most self-employed people--and figuring out a sane way to handle it also means finding a way towards serenity with something that's far from serene. When it works, though, you have the stability and serenity to know that your business will support you even when the cash isn't flowing.
The number one change I made was to stop using credit cards.
I think I've mentioned this in this space before. For me, as a nascent freelancer, managing a high debt load wasn't a good business risk. Sure, I have plenty of experience running up credit card debt. I bought sweaters in college that are probably still the most expensive garments I've ever owned because of the sheer amount of interest I paid for them. But I didn't want to do that to myself this time.
So I set up a system where I borrow from myself instead of friends, family or Mastercard.
Here's how it works:
1. Aim to bring in more money than you need to live on every month.
I know, when you're just starting out, paying your bills can be a radical concept. But just aim for it.
2. When you have additional income, split it 50-40-10.
50 percent goes to a "cashflow" account, designed to fill in the holes while you wait for Client X to cough up your cash. Eventually, this account should be able to give you a regular paycheck on the 1st and the 15th of each month. You know, like a job.
40 percent goes to accruals. That can be savings you don't touch. But it can also go towards categories like "vacation," "computer repair," "office equipment," "continuing education," and more. This money should be divided between your personal needs and your professional ones. Don't skimp on personal care with this. Figure out what's most important and put a little money in both. For instance, if you're Christian, how about a "Christmas" category?
10 percent goes to fun. Yes, that's right: frivolous, silly, extravagant fun. Take your sweetie to dinner. Buy yourself those boots. Put fresh flowers in your office every week. Buy that beautiful but unnecessary soft leather binder for your day planner. The point is to reward yourself for earning more money than you need to live on. It's a motivator.
Now, there are lots of ways to do this. I have friends who take 10 percent off the top of everything they bring in and pay it into a savings account or accrual accounts. The idea is to pay themselves first, instead of letting money just pass through them to their creditors.
Do whatever works for you. But remember: That money isn't "extra"--as friends have reminded me. It's absolutely necessary for your business to support you long term.