30-Day Economic Stability Challenge: Prioritizing Cashflow

You know the drill: You should have a good financial cushion in place before you start freelancing. But what if you don't, and you're already in business? Believe me, I've been there. Fellow freelancer Julie Sturgeon found an ingenious solution to her cashflow issues, so I asked her to share it. Generously, she agreed.

I especially like her method because it creates a "personal line of credit" without using a credit card or those home equity lines of credit The Simpsons lampooned on Sunday. I hope you, too, will find it inspiring. I challenge you to look at your spending and see if there are funds you can reallocate to create your own cashflow line of credit.

Sturgeon is a Greenwood-based writer with more than 20 years of professional writing experience. Her resumé covers everything from lifestyle reporter to investigative reporter, sports writer to editor of two business-to-business magazines. She is also a former winner of the Writer’s Digest magazine feature article contest. Besides writing, her passions are traveling, Indiana University basketball and the movie Braveheart.

Back in April of 2001 — before the 9/11 attacks, a dot.com bust, Hurricane Katrina, a stock market crash and recession— I interviewed an analyst about cash flow for a trade publication.

“A small-business owner has to stop worrying about profit and loss and start considering cash flow the lifeblood of the business," Alice Magos with Commerce Clearing House told me. "You can be terribly unprofitable and still survive as long as your cash is flowing — but by the time somebody learns that the hard way, they’re usually out of business."

It was a great quote in the article, but I wasn't a believer until my uncle confirmed it. My uncle, the small-business owner who has had his name on the outside of a funeral home for decades. Mu uncle, the man we considered the rich family member because he could actually spend money shooting at basketball hoops at a carnival until he won the big stuffed animal prizes. Yep, he confirmed, he rarely showed a profit on his taxes.

So I got it: The trick is to have money at your fingertips when you need it. But it wasn't something I focused on. After all, the cash was flowing automatically as I continued to earn more every year and incorporate my business. I set up charts to rate the profitability of each client. I cut the bottom 10 percent each year to improve those profitability numbers. I raised my minimum several times to maximize my time in the office.

And now it’s 2009, and suddenly whether or not any particular assignment earns my hourly minimum is moot. I need X dollars in my bank account each month to pay my set expenses. My accountant suggested we set up a small line of credit at the bank to draw from on those months when collections trailed behind the bill due dates.

My husband had an even better idea. He added up our mortgage payment, our monthly payment on the home equity line we took out to remodel the kitchen, and the amount we were paying back to our 401(k) plans we borrowed from when a business failed in 2007. If we remortgaged to roll all those into one payment, it would extend our timeframe to own the house free and clear from 8 years to 15, but the new interest rate meant that one payment came to only a few dollars more than the current mortgage. Essentially, the plan freed up nearly $1,700 a month in financial commitments in our household.
Starting this month, we are putting that money into a savings account as my personal line of credit. I’m not a big stickler on profit these days — in fact, I’ve lowered my hourly minimum expectations by $25 an hour — but I have the safety net I need to avoid being abused by slave wages, too. And should I need to draw on those emergency funds, I’m confident my husband will have a kinder interest rate than the bank.

30-Day Economic Stability Challenge: Three Ways to Increase Your Income This Month

In a pinch?

So often on freelance boards, writers pose the hopeful question: What do you do to bring in more money this month? We aren't talking about raising your income in the long run. Sometimes, you just need money now.

There are a few options, but proceed with caution: These suggestions are not a replacement for a business plan or a marketing plan. You will not last as a freelancer if you try to use these suggestions to keep your business afloat. They are stop-gap measures, and as such take you away from the focus you've created with your plan. As writer Merydith Willoughby replied when I posted this question on LinkedIn:

Writing has to be considered a business: You will have to make your mark in the particular genre you write in, be excellent in your field and work your butt off to make links, contacts, etc. Once you've achieved all that, yes you can achieve your goal. It takes time, hard work, years, stamina and patience and a willingness to always improve what you are doing. Other than that, yep - it's easy.

The other bad news is that there aren't many options that both pay well and pay quickly. Usually you get one or the other. What's that old saying? "I can do it quickly, I can do it well or I can do it cheaply. Choose two." The same usually goes for freelance writing, only instead of choosing between cheap and fast, you're choosing between well-paying and fast.

Having said that, here's what my LinkedIn colleagues had to say:

Option #1: Low-paying but regular clients

In Six Figure Freelancing, one of the things Kelly James-Enger impresses upon new freelancers is that it's important to just get a stream of money coming in. For her, it was writing for hospitals. For me, it was doing movie reviews and advertorial. Sure, they paid terribly and took up a bunch of my time, but I like movies, and they paid a week after I turned in the reviews.

This is what freelancer (and full disclosure: friend) Vanessa Richardson does. "[My way of making money quickly from writing] is writing a lot of blog entries for this AOL website that pays little but at least pays on time."

Finding these can be relatively simple. Low-paying work is available on Craigslist, MediaBistro and elsewhere. The key is to keep it a small part of your income stream and your time commitment so you don't fall into the trap I did: Spending so much time doing low-paying work you don't have time to query higher-paying markets. If you've managed this, I'd love to hear about it.

Option #2: Tutoring

If you're a decent editor and can get your hands on a Chicago Manual of Style or other style guide, you can post signs around local universities, advertising your editing skills for students needing help with their essays. You won't make $1/word rates, probably, but you will make a decent amount to fill the gaps.

Or, go more global with your teaching. Rob Duncan, keynote speaker and self-described "innovation catalyst" suggests you "teach others how to write through college night courses, seminars, the Learning Annex, webinars or paid speaking gigs. Plug your nose, and sell the dream!"

Option #3: Editing Resumes and Cover Letters

The same goes for this idea. Dave Gardner, a writer and editor with 27 years experience has a lot of practice "getting new jobs after others go south." This is one of the ways he does it.

"I've been helping folks with their resumes and cover letters," he says. "The economy makes resumes and cover letters something a lot of folks need. They need them now, they pay quickly, and they appreciate what you've done for them. It just takes a little advertising (a flyer at the local unemployment office and at the temp agencies works well) and networking when out and about."

Option #4: Selling a Story a Minute (Almost)

Outgoing? Like strangers? This idea might be for you--emphasis on might.

"There used to be a guy in Chicago who would set up his manual typewriter on a street corner and write a 2-minute novel about your life," says writer Bob Rosenbaum. "He'd ask you about five questions and then bang out two paragraphs about you with a beginning, middle and end. All for whatever amount you wanted to put into his typewriter case."

What I didn't include
You may have noticed that I didn't include those freelance boards where you compete with other writers to land short-term assignments. That's because I consider them both not writing and not useful to any kind of freelance writing business model. Think about it: It's about stringing keywords together to lure eyes to ads, not writing. And for the pleasure of doing work that isn't fulfilling, you'll get to compete with other freelancers, drive down the price, and usually pay some kind of monthly fee. That's not worth it, and I'm willing to bet you deserve better.

Have other writing-related ways to make quick cash? Share them in the comments.

Photo by zzzack.

30-Day Economic Stability Challenge: Collecting what's yours

One of the things freelancers hate the most about the business side of the job is collecting money that's owed to them. In this economy, doing it is becoming even more important, and common. So I've asked a fellow freelancer Kristine Hansen, to explain how she tries to avoid having to do collections in the first place, and then how she approaches it when she has to do it. It turns out that it's much easier than you may think--and it requires more persistence than perhaps you'd like.

Hansen is a freelance writer in Milwaukee and covers travel, food/drink and eco-living topics for many national publications. She just entered into her 10th year of freelancing. Read more about her at KristineAHansen.com.

How common has it been for you to have to go to bat to get your checks? Has it changed recently?
Having to chase down checks has, fortunately, not been something I've had to do often. I intentionally seek out magazines that seem to be viable and are committed to paying on time and in full. (Note: Having a solid network of writers who dish on their clients is key to finding them!) My first brush with a "deadbeat client" came in 2000, right after I began freelancing, and it was because the Web site I had been hired to write for filed for Chapter 11. There has only been one other instance (see below).

What happened in 2000?
I was doing a lot of writing for a Web site and it may have been because I was new to the business of freelancing, but I made maybe two calls to the subcontractor before giving up on collecting the $600 that was owed to me. Because the subcontractor pleaded ignorance but was extremely kind to me, I dropped my plea. I now realize that his demeanor was likely a ploy to put me off! If this were to happen today there is no way I would drop the matter so easily.

How much time do you spend a week on collections, would you say?
Honestly? Other than the time it takes to drop relevant info into an invoice and then e-mail it, zilch.

Would you describe how you go about doing collections: How do you track when payment is due, how soon after the due-by date do you contact the editor, and how high up the food chain have you gone?

What I would highly recommend is sending the invoice immediately after filing your story. Each publication plays by its own set of rules for how it cuts checks. The more days you wait to invoice, the more likely your check could end up in the next cycle (lots of times publications cut checks in batches). Being a day late in that cycle could mean you are waiting an additional 30 days for the money. You'll know based on the contract you sign what the terms are (ie, how many days after either acceptance or publication the check is processed) and that helps you guess when "pay day" really is. What can sometimes happen is that the editor does not receive your e-mailed invoice. So that can hold up the process.

Give your editor a few days after submitting yours before sending a follow-up message to confirm its receipt. I keep track of three kinds of dates in an Excel file:

• The date of the invoice;
• Any times I'm in touch with the editor or accounting about payment; and
• The date my check arrives.

For repeat clients, this makes it easy to determine a publication's pattern for cutting a check (in other words, how long it will take). One last thing to know is that its the accounting department that cuts the checks, and not your editor. So if your editor doesn't seem to be going to bat for you, politely ask for the name and contact info for someone who can.

What mistakes have you made with collections, and how would you advise other freelancers to avoid them?
The classic mistake I seem to make more times than I'd care to admit is to not follow up on sent invoices.

You mentioned elsewhere that you hate having to be the "squeaky wheel" to get paid. Can you elaborate on that?

Just last week, I realized that a magazine's promises to cut a check were not coming through. Every few weeks I would receive an e-mail that announced the check was en route -- but in actuality, it was not. It occurred to me that being a squeaky wheel in this magazine's "engine"
could result in a check being cut.

The good news is that it worked!

My editor had also become frustrated with the matter and while I knew she was doing her job to see that I got paid, I asked if there was someone in accounting that I could speak with. When I got this person on the phone, I calmly relayed the series of mishaps when she said that the check would go out in the next few days. I requested that the check arrive within the week and if not, I would be obligated to report this incident to the professional writers organizations I am a member of. But even as I was saying those words, realizing that they could be interpreted as a threat, I knew that I was doing what any other business owner would do.

Because freelancers are working project by project, there's a strong want to be pleasant, polite and flexible. That's hard to do in situations like this. But taking good notes on the correspondence you have had, and taking a lot of deep breaths helps. It's also helpful to view the discussions with a strong sense of
teamwork. It's not you vs. them. Getting paid is a natural step in the relationship a writer has with his or her editor.

30-Day Economic Stability Challenge: How I increased my income in nine months

It wasn't that long ago that I was working nights and weekends and still not earning enough to live on. But it doesn't have to be that way. Over a period of nine months, I went to work to change the kind of work I was doing to increase my pay, decrease my work hours and make freelancing sustainable for me.

Since we've been talking about the scary parts of finance so far--the savings, the mindset, and all the things you should have in place before you start freelancing, etc., I want to spend today talking about the good stuff: What happens when all your work pays off.

But it was work. To wit:

Meet with a consistent group.
I met monthly for a year with the same two self-employed people who constantly were urging me to move away from the movie reviews that paid me $50 a pop and the articles that paid 15 cents a word on publication. They did it gently, and kept at it until I was frustrated enough and bleary-eyed enough to listen. Then we talked about how to do it.

You don't have to have a group in place, but the key is to look for a mentor or two and set up regular meetings with the understanding that you're there to get help.

"Don't think about next month, think about November."
This was the best single piece of advice I got during that time, and it was my guiding mantra. Every time I worried about decreased income from not doing as many movie reviews, or spending time querying instead of time watching movies to review, I focused on bringing my income up in six or nine months instead of how I was going to get through next month's bills.


Focus your marketing.
I didn't have a specific income goal. The goal was simply "more than I'm earning now," which was what I needed. But I knew how I wanted to get there: I identified that I wanted to write for publications that paid $1/word on acceptance or more. Sure, it was easier to keep querying the low-paying markets that I knew were desperate for writers (guess why they were so desperate...). But I couldn't cling to them if I wanted to really make this my career. So I queried higher paying markets. I looked eagle-eyed for job ads and applied for every one I could find.

And when I got the assignment, I had to be willing to say no or negotiate if the pay was too low.

Take a class.
It was around this time that I took Erik Sherman's Planning Your Writing Business class. It taught me how to create an hourly rate. It taught me how many queries I should send a month, and how much I needed to make a day, a week and a month to support myself, including taxes. I also learned what my hourly rate needed to be.

Ask for help.
During those nine months, I often felt like I was coming out of my skin. I wasn't earning enough. I was selling old clothes and shoes and books online to make end's meet, and sometimes they still didn't. When an eroneous charge was made to my checking account, I'd call my friend in tears, because I didn't have those extra $10 to spare. But my friend always said the same thing: You will get through this. Focus on November. I know you feel like you're going to be homeless, but you won't. You will make it through.

And I did. It was amazing and a serious faith-building exercise.

Take good care of yourself.
Those serenity practices I told you about the other day? Yeah. I did those in spades. I took the advice of a dear friend who said, "You should meditate once a day, unless you're really stressed. Then, meditate twice a day." I poured my nervous self into downward dog and into my journal and into the ears of some very kind friends. And I didn't use a credit card to relieve the pressure. I just worked hard and kept forcused on November.

The outcome
I won't lie: That kind of hard work isn't for the faint of heart. I had to keep doing the low-paying work long enough to keep supporting myself--barely--but also do the additional work of seeking out and doing higher-paying assignments. I was stressed, I was scared and I wasn't convinced it would work. It might have been the hardest I'd ever worked in my life.

But when November rolled around, my income for that month was double what it had been the February before. And it kept coming up. When I'd go to my business meeting with my mentors, I often had a look of incredulity on my face. I couldn't believe it. It worked. I could take a little pressure off. I could maybe go on a vacation and I could trust that my rent would clear and I could be the one to treat my sweetie to a meal for once.

I won't say that it's been an even course. It certainly hasn't. But that focus taught me both that I never want to go back to working the way I used to, and that I had the capacity to work hard and earn a decent income. There's a saying I've heard that goes, "You can act your way into right thinking but you can't think your way into right acting." This experience proved it. I was doing low-paying work because I didn't have the confidence to do more. But by doing the hard work, I earned that confidence.

What's the hard work you need to do today?

Photo by CamponeZ.

30-Day Economic Stability Challenge: Financial planning 101

Often, people go into self-employment because they love doing what they do, says Sherrill St. Germain, MBA, CFP®, is founder and principal of New Means Financial Planning, a Hollis, NH-based, fee-only financial planning firm. She provides financial advice on an hourly, consulting basis.

"The thing is, the skills required to be a good writer or a good financial planner are often different than the ones required to run a viable business. Plus, they compete for your time and mindshare."

So how do you put on your business cap if you've never had one? St. Germain, who especially enjoys working with career changers to develop financial plans that enable them to transition to their dream job and the life that goes with it, answers some of finance 101 questions below.

If you haven't done all of them, don't panic. The point of this challenge is to learn and start applying the principles now.

Heather: How is managing finances different for a newly self-employed person than it is for people with full-time jobs?

Sherrill: Ultimately, it’s about taking responsibility for managing things previously managed, if not actually paid for, by your employer:

• Changes in the business’ ability to make money;
• Income tax withholding;
• Retirement savings;
• Health insurance; and
• other insurances, etc.

Further increasing the challenge, this usually has to be done in an environment with fewer economies of scale. So if, by self-employed, we are mostly talking about solo or very small business, that self-employed person will not be as likely to get a good a price as is offered to those buying in quantity, whether the item being purchased is insurance, widgets to be used in a product, or marketing materials.

The plus side: The self-employed have increased control over their financial destinies. In particular, as a full-time employee, you can be laid off at any time, resulting in income going from nice predictable stream to $0 almost overnight. As a self-employed (if you’re doing it right and not relying too much on any one customer), the loss of a single account hurts but you don’t go immediately to $0. Also, working harder/smarter has the potential to have a direct, fairly immediate impact on income, whereas a full-time employee may have to wait until who-knows-when to get a much-deserved raise.

What are the biggest challenges people face, and what should people do to address them before they become a problem?

It all comes down to cash flow, and I think I may have addressed how those challenges arise (probably ad nauseum!) elsewhere.

As far as what to do about it, the answer is to do cash flow projections on a frequent enough basis to catch a shortfall before it starts to cause ripple effects, such as bounced checks that result in angry suppliers no longer willing to provide widgets required for you to deliver product which results in angry customers or maybe former customers. This might be monthly, weekly, or even daily, depending on the kind of business and the size of the cash cushion.

Don’t like keeping a constant eye on the financials? Better have a bigger cushion.

What are the most common financial mistakes made by newly self-employed people?

Not doing nearly enough math to determine whether their plan will generate enough money in the time frame they need it to, in order to support themselves without a lot of angst, financial and otherwise. In my experience, people often want to shift to self-employment so bad, they avoid running the numbers (or they are overly optimistic) so as not to find out things aren’t as rosy as expected and be faced with a difficult decision.

My take: However painful it might be to delay a shift to self-employment to allow for the numbers to work, it’s always less painful than making the leap and finding out later, once thousands of dollars poorer and much more discouraged, that it won’t work. Here are some common gotchas:

• Making the shift to self-employment without enough cash to get through the lean beginning period, which can last 3 years or more.
• Not knowing how much income from the business would be enough, because you don’t know what you spend now or how it will change after becoming self-employed.
• Not keeping business and personal finances separate.
• Not keeping enough of a cash cushion in your business account
• Confusing sales (money you are paid by a client) with net income (the amount that you actually make AFTER you pay all the costs of doing business). For example, if you have a $15,000 contract but it costs you $12,000 to deliver on that contract, you only end up with $3000 as income. From that, you’ll need to pay a portion in taxes. The rest is yours to do what you like with: take as salary, reinvest in the business, whatever. But don’t plan on $15,000!
• Forgetting to set aside money for income taxes that will be due on any money you get paid, and getting an unpleasant surprise the following April.
• Not planning for the employer’s portion of payroll tax, a.k.a. the self-employment tax.
• Forgetting to save for retirement – No matter how perfect a fit your work, you will someday want or need to retire.
• Not getting professional liability, disability, or life insurance (or – God forbid – health insurance) if your family situation calls for it.
  

What advice do you give to freelancers about managing cashflow? What kind of system do you recommend?

Try to mimic the model of people with full-time jobs. That is, treat the business as a completely separate financial entity. This includes setting up a separate business checking account with enough cushion to allow for expenses to get paid during down, as well as up, periods. This might be something like $3000 – 5000 or more (depending on how big your biggest expenses are and how reliably and frequently new cash flows in.)

I also like the idea of paying yourself a salary, e.g. setting up an auto-transfer of a certain amount of cash each month (or every 2 weeks) to your personal account for use in paying the mortgage, etc. It might not be possible to do this out of the gate, but it’s a great goal, as well as a strategy for insulating your personal finances from fluctuations in the business.

In this credit crunch, do you recommend people use credit cards? Why?
I’m a big proponent of “pay it off in full every month” credit card use for both business and personal, because I so rarely see an interest rate that’s reasonable and that sticks around for long enough. In a pinch, if someone can make a clear business case for using a credit card for an expense (i.e. “I’ve done the math, and it’s going to cost me more NOT to buy this big piece of equipment than it will to pay for it + interest on the credit card debt.”), then it might make sense.

How can self-employed people make reasonable budgets for themselves? What do they need to include?

There are two ways to consider this:

Personal
If you mean personal budgets, I’d recommend they start with an inventory of what they’re currently spending, either by reviewing Quicken data or using my Career Changer’s Cash Flow Worksheet (in Excel). The worksheet has columns for before, during, and after calculations across typical spending categories, including the ones that people often forget because they don’t happen on a predictable monthly schedule, e.g. real estate taxes, vacation, etc. I’d also recommend they include a figure, maybe 5 – 10%, for “unexpected” or “one-time” expenses. Turns out these are never really “one-time” – they’re just different from year to year.

Next, they need to ask the question: “Can I reasonable expect to cover these expenses after a shift to self-employment?” (Again, not forgetting taxes and saving.) If the answer is no, then they need to take a pass through the list of expenses and decide what things they can/want to cut out in favor of opting for self-employment. Best resource for this: Your Money or Your Life, a book that helps readers sort out what’s worth paying for and what isn’t, in alignment with their values and short- and long-term goals.

Professional
The goal for a self-employed person, once the business is established, is to have a budget that is a solid, say, 10% below the average monthly income (after taxes and savings) that can reliably predicted on an ongoing basis. So for example, say you are confident the business will do well enough for you to pay yourself $4000, $1000, $3000, $7000, $1000, $2000 in the first 6 months of the year, for an average monthly income of $3000. A wise self-employed would plan to spend no more that $2700 per month. Then if things go better than expected and there’s a surplus, great problem to have: Buy those things on your “maybe” list, or further beef up your cash reserve. If they don’t go as well, you’re better positioned to survive.

Prior to getting established, you will have to cover expenses with money from other sources besides your self-employed income, whether that’s a spouse’s paycheck, savings, part-time work, or some combination. It’s important to do the math to determine how much will be needed to fill the gap and identifying where it will come from (savings, loan, etc.) before making the leap to self-employment, while you still have a chance to save more to cover shortfalls.

Anything I didn't ask that you want to add?

The number one biggest stumbling block I see with self-employeds is accepting the fact that you’re not just a writer, financial planner, marketing consultant, social worker, whatever, but that you’re running a business and need to put on your business owner hat on a regular basis. Even when you have plenty of business. This means planning time to think about things like:

• Business planning – How will I structure my business to make money? How will I monitor and, if necessary, adjust that plan on an ongoing basis before things go awry financially?
• Marketing – How will I attract enough clients to make that plan work?
• Sales – What process will I follow to ensure that those who are interested and a good fit end up deciding to go with me?
• Operations – How will I deliver on commitments made, and do it efficiently and accurately enough even when things get crazy busy?
• Finance – How do I make sure I have enough breathing room so that, if cash comes in more slowly or goes out more quickly than anticipate, I won’t suddenly be out of business?
  

…and all the rest of those things that larger businesses know they have to consider to be sustainable.

Yes, they can be done on a much smaller and more informal scale, but ignoring any of them is likely to result in financial trouble eventually.

Photo by borman818.

30-Day Economic Stability Challenge: Financial Mind Shifts for Successful Freelancing

When that big check I got last month bounced, I did more than freak out--I catastrophized. I wailed and gnashed my teeth and complained to all my personal friends about it. I was in a sour mood for a while.

And then the question came to me: What if I had plenty in my account to float myself until the check cleared? How would I have reacted then?

Let's be honest: I'd still be upset. But I wouldn't have felt like I'd blown out the nerves in my fingertips and my back with panic. It would have been an inconvenience instead of a crisis.

Cashflow.

Managing it is number one barrier to successful freelancing, and I hear it from coaching clients and colleagues alike. It's also the primary way that economic stability is different for freelancers than it is for full-time employees. After all, when you're employed by someone else fulltime, your finances are structured around that twice-monthly infusion of cash. You run things down to the bone and make purchases secure in the knowledge that the cash will be there Tuesday. And if you don't quite have enough, it's okay--throw it on a credit card and pay for it in a few days.

As freelancers, it's a totally different ball of wax. That's why in this challenge, we'll share several opinions--professional and otherwise--about how to deal with the problem of uneven cashflow. Today, I want to start by laying out the mind shifts that have to take place to spend--and save--differently as a self employed person.

Mind Shift #1: Self-employment isn't just full-time employment on steroids.
Freelancing is so completely different from full-time employment. You have to do things yourself that in the past required one phone call then an afternoon complaining to your cube-mate. (When my Internet went out this weekend, I found myself spending my day off waiting for the Internet-repair guy to show up.) What you get paid for is different. (Hint: It's not your marketing, admin or the waiting around for the Internet-repair guy.)

So why wouldn't finances be different too? It seems obvious, but it's often bewildering to new freelancers, myself included. However you've structured your finances in the past, don't assume you can just make self-employment look the same. Eventually, you may get to the point that you can pay yourself a salary on the first and the 15th, but until then, you have to structure spending, payments and funds allocations differently. You can't run your account down to zero and hope the check shows up the day it's due--if you even know when that is.

Mind Shift #2: Credit is not your friend.
Given the current credit crisis, this may not be a surprise, but there are many freelancers who start their businesses with just their determination and some plastic. Do it if you must, but I argue that the best way to drive yourself out of business is to run up external debt.

Think of it this way: You spend on your credit card to float yourself till cash comes in. You end up spending $500 for groceries and gas and whatever else. Even if you pay just the minimum on that, you've likely added another $50 to your budget for the next several months--or you've added $510, $550 or even $1,000 to your expenses, depending on how quickly you pay it back.

As a freelancer, the name of the game is to keep your expenses consistent, knowable and productive. When you're constantly spending and paying down debt on credit cards, you're messing with a basic of your economic stability. And you've added a very large payment category that would be better spent towards savings, office equipment, lunches with potential clients or classes.

Mind Shift #3: Welcome to the United Bank of You
Despite last month's financial freak-out, I didn't resort to credit cards to float myself until the check arrived. Why? Because now I float myself my own credit, in the form of accruals in an online high-interest savings account.

A better approach than relying on an external company to provide credit is to keep money around, in your own checking, in your savings, in online savings accounts or elsewhere. I'm sure people will argue that using credit is an easy way to keep your finances stable by avoiding feast-and-famine cycles. But a better way to do that is to be constantly marketing, constantly selling, on top of invoices and diligent about putting a little away each month. That way, you aren't increasing your monthly expenses and you're keeping your finances stable.
Mind Shift #4: There are lots of ways to say savings.
In business, there's such a thing as an operating budget, prudent reserves and accruals. For freelancers, those are all ways to say savings. Here's why--it's one of the most important things in business survival. Here's what they mean:

• Operating: An account you create for yourself that has money in it that's allocated for nothing but keeping your business operating, no matter when the next check is scheduled. I call this my "cashflow" account.
• Prudent Reserve: This is money you plan not to touch unless there's an emergency. Even if there's $5, it's $5 towards financial stability.
• Accruals: Need a new office chair? Want the new version of MS Office? Know your computer or printer is on its last legs? Stash the cash in these funds to keep your business in business.

Mind Shift #5: Earning enough isn't enough.
When I was starting off, my only goal was to cover my monthly expenses. It was a worthy and noble goal. But I learned quickly how insufficient it was if I hoped to make freelancing a sustainable prospect. There are always expenses you weren't expecting--always car, computer or other repairs that need making. And then ther's the need to float yourself money, to cover expected trips to the doctor, or to cover bills you forgot about.

I can guess that many of you new freelancers are blanching at the news. I don't say this to scare you. I say it because changing the way you approach your finances will help you, even if it scares you at first. You don't have to do it perfectly. You don't have to be hard on yourself about it. But you can set an intention, fold it into your business plan and marketing strategy and make a try at it every day. That's how you'll have the money.

What mind shifts did you experience when you went from permanent to freelance work? I'll share them in a later post if I get enough.

Photo by Howdy, I'm H. Michael Karshis.

30-Day Economic Stability Challenge: The power of serenity

I'm not a calm person by nature. I like to keep myself in a state of cat-like readiness so I can deal with problems as they come up. There usually aren't enough problems to keep my mind busy, which I think is part of why I enjoy freelancing--at least my fears tend to be real.

That natural nervousness is why I need this challenge. But my serenity practice is what helps me deal with any financial situation, particularly the one I experienced last month when a check from a longtime and cherished client bounced.

My serenity practice usually consists of:

• Eating healthy food;
• Trying to sleep eight hours a night (though I don't always make it);
• Daily 10-20 minutes of mindfulness meditation;
• Daily housecleaning of the mental kind--writing out all my fears and praying to let go of them;
• Regular exercise, including cardio at the gym and yoga; and
• Regular meetings/phone calls with a wide network of other freelancers.

It's a lot of work, but it also pays amazing dividends. I learned this last month, when that check, most of my money for the month, disappeared from my account, leaving me with a negative balance. For one weekend, I had $13.

But I got through it without making it worse. I maintained a positive relationship with my client, I continued to do my work, and I didn't borrow money or use a credit card to get over it. In future posts, I'll explain why that's important for me.

Today, I'll explain how I did it:
I called lots and lots of self-employed colleagues.
There's a place for rage and fear and confusion and hopelessness, but it's not with your clients. I called friends who were Realtors, writers and career coaches. When I had to send a pointed email to my client, I ran it past several more veteran freelancers to make sure it was based in reason, not emotion. I spewed my spleen with my friends and loved ones. I broke down more than once and called friends and colleagues hysterical. But because of my daily serenity work with writing, meditating and yoga, those moments of hysteria were shorter than they've ever been in my life.

I did loving kindness meditation for my client.
I've written about this before, and I know it's the last thing you want to do when you've been wronged despite doing everything right. But the fact is that I just wanted the problem to be solved, and I don't like how I feel when I'm enraged and full of self-pity and self-righteousness. Those aren't feelings I can afford to nurture, so instead I prayed that my client would have everything I wanted for myself. That goes for my bank, too.

I did the paperwork.
When I got the email from my bank saying I had a negative balance, I thought it was a phishing scam. When I realized it was real, I knew just what to do:

• Email my client and ask what happened and for a new check;
• Call the people to whom I'd written checks to see if they had deposited them and if they could hold them. They could. I even called a magazine to whom I'd sent a check and asked them if they could hold it. They couldn't but I tried;
• I called my bank; and
• I transferred funds from other savings accounts to cover myself in the meantime.

I could do all of this because I both knew the checks I had sent and knew where to find their information. Being organized is a godsend in this situation.

I was persistent.
Persistence doesn't just pay off in querying. In a situation like this, willingness to keep showing up for the next piece of bureaucratic monitoring--calling the bank, checking to see when the reissued check would arrive, calling the bank again, visiting the bank--meant the issue got resolved. I did what I could. Then I used my serenity practices to try to let go of the rest.

I exercised.
Even though I was emotionally wrought and just wanted to sleep, I forced myself to keep up my writing, meditating and exercise regimens because I knew they'd help me recover faster. And they did. The writing and exercise helped me express my feelings in constructive ways. The meditating soothed my very frayed nerves. I even added one more meditation practice onto my week for extra care.

I prayed.
I know it sounds hokey (again), but I know in these times to be a self-employed person takes faith. My faith has been shaken by this situation, but I tried to bolster it by practicing gratitude. In my morning writing, after writing about my anger, I focused on the good things I had instead of the things I lacked, and thanked god for them.

Outcome

The result is that my account is flush again, thanks to quick action by my client and my own advocacy with my bank. I also stayed on track with my other clients, kept querying for more work, completed the last blog challenge and continued to meet with friends. I didn't do any of this perfectly, of course, and I definitely felt the need for more sleep. My nerves are still a little shot and I need a day off. But it could have been worse, and I could be feeling much worse now--still resentful, self-righteous and completely distracted from what my clients need from me.

And the best part is that I could see how much support I really have, how strong I've become and learned how much i really know about managing my business.

How do you cope with economic crises?

Photo by zieak.