The current trend in freelance work shows that more of us than ever are now recognizing how fantastic this lifestyle can be. Forget long hours and unreasonable demands. When you work for yourself, you’re in control. You can dictate your own hours, set up a home office which suits you, and generally live your best life. What’s not to love about that?
Other than the fact, of course, that going freelance also means giving up financial stability. While this shouldn’t be enough to dissuade you, it is worth noting that freelancers need money in the bank. In fact, when you work this way, the best advice we can give you is never to let those savings slip below $5,000. It may seem like an arbitrary number, but this is a pretty decent ground level to work up from. You would undoubtedly struggle to weather every financial storm for less.
Does this mean that you can’t start out until you have that much money in the bank? In an ideal world, yes. But, you can get going on your freelancer journey without this, as long as you’re willing to dedicate yourself to saving it fast. If you’re still not convinced, read on to find out why anything less than this could put a nail in your freelancer coffin.
Unexpected tax expenses
You don’t need us to tell you that the tax man can bring plenty of unpleasant surprises our way. We all dread seeing that little brown envelope on our doorsteps, don’t we? You might still argue, then, that you don’t need any more savings now than you did back then. But, the reality couldn’t be more different. For one, the taxman has much more reason to keep an eye on what you’re doing now that you’re freelance. As such, you may find that missed bills or unexpected tax expenses from the past start cropping up. It’s also important to note that, at this stage, you have no real way of knowing how much tax you’ll need to pay. When you were on a steady salary, it was easy enough to predict how much you needed to set aside for your tax return. Now, though, that amount may vary. You may end up paying less, and that’s fine. But, if freelancing goes well (and you hope it does), you could end up with a much larger tax bill at the end of the year. By keeping $5,000 aside, though, you can rest easy that no surprises will clear your funds entirely.
Work dries up
It’s a hard lesson to learn, but there comes a stage when every freelancer faces work drying up. Sometimes, this happens for no more reason than a lack of demand. In some cases, it may even be that your services only see demand at set times of the year. Either way, not having enough in the bank means dry periods are a real problem. With less than $5,000 set aside, you’ll struggle even to weather a month or two without income. But, if you stick to that number and above, you should be able to sustain yourself for a good while without any jobs at all. This is fantastic for freeing you up to seek new clients without any sense of urgency. And, that relaxed attitude makes it much more likely you’ll be able to find your way back to decent work down the line.
You’re unable to work
While there’s no law stating that employers have to pay you for sickness, most do offer some form of sick pay. As such, time spent off work isn’t a big issue. But, when you’re a freelance, every day you don’t work is a day you aren’t paid. This can cause problems in a general sense when you have to take time off to recover from bugs and the like. That said, it’s unlikely you’ll need $5,000 for a day or two off here and there.
More, your savings may be necessary when you experience injury or illnesses which leave you unable to work for extended periods. It may be, for instance, that a long-term illness leaves you hospitalized for six months. Or, you could be involved in a car accident which leaves you unable to work for an indeterminate amount of time.
While insurers will often pay for lost work, it all depends on the policy of the other person. As such, you may be unable to gain full compensation here. While companies like Blumenshine Law can fight for what you’re owed, that means taking even more time off. All the while, you have to survive on next to no savings. Do you see the issue yet? Not having a large savings pot means that an inability to work could spell real trouble. And, given that not affording to eat will only slow your recovery, this is a vicious cycle. So, save to make sure it never happens.
You can’t work without a break
Again, there’s no law stating employers have to pay for vacation time, but most do. Guess where this is going? When you work freelance, there’s no big boss behind you to pay for your breaks. During the early stages, you may naively think you don’t need to worry about taking vacation time. The chances are, though, that months of work with no break will soon take their toll. And, when that happens, you wouldn’t believe how glad you’ll be for that hefty savings pot. This means that you can both cover time not worked, and splash out on decent vacations. All without having to worry about the state of your finances. Those who don’t save can still take time off, of course, but it’ll be much more difficult. You’ll find that you struggle even to cover the cost of time taken off, let alone to afford cool things to do. Instead, you may be left sitting at home wondering why you bothered. If nothing else, isn’t this proof of why it’s important to save?