Being a freelancer means you are your own boss. You can set your own schedule and work at your own pace. Even the amount of work that you take on is up to you. However, when it comes to setting up your finances around your new job, things aren't as simple. Whether you are considering business loans or you want to use your savings to get started, you need to know just how money works for freelancers.
What is Your Cost of Living?
Business loans can make the transition to freelance work easier but you still need some idea of what it costs to live. Add up all of your monthly bills. This includes your mortgage, your car payment and even your utilities. These are things that you probably can't live without.
Once you have a roof over your head and electricity, you still need money for food, clothing and gas. Entertainment expenses should also be included, but remember that this is a category of spending that may have to go if you aren't making enough money.
Remember that medical insurance isn't usually offered in freelance positions. Because you are an independent contractor, you are not a full time employee for any company. This means no medical benefits, no retirement fund and no special savings plans. These expenses and investments will need to come straight out of your pocket.
The total of all of these things added together is the amount of money that you will need to come up with each month to make sure that you are taken care of. Business loans make this transition easier as they make up for the lack of income as you get things started. At some point, you will need to be able to support yourself and make enough money to begin to pay the loan back.
How Do You Handle the Ups and Downs of Income?
Consistent income isn't always a possibility in freelance work. You can end up having a sizable income one month and not being able to pay the bills the next. While your goal is to find work that is consistent, with steady pay, this isn't always a possibility. You have to plan for the good and bad months.
When extra money comes in, move it straight to the savings account. You will be tempted to spend it and celebrate your success. Celebrate in moderation. The next month, things could take a turn for the worst. For the first few years, your savings account could end up being a lifesaver.
As slow months approach, you have the savings account to fall back on. You always need to have a safety net when it comes to freelance work. A solid savings account could be the difference between staying in business for yourself or going back into the traditional workforce. Even if you weren't planning on looking into business loans, that type of back up money can be helpful in the beginning.
This post has been provided by a guest blogger.