Thursday, July 18, 2013

Back To Reality - It's Budget Time!

Epic Leap of Faith Is Epic
Did you watch yesterday's video from Shane Pearlman? Because hot damn, I want that life. Not only has he been able to grow his business to the point that he's actually turning down legitimate clients (not just the crazy ones, actual clients that he would like to work for but just doesn't have the time!), but his business allows him time to surf, a beautiful house, time with his family, and a life he loves. Hard life, right?

In all seriousness, it does seem difficult - even unimaginable sometimes - to reach that point where your art is fully supporting you. And Shane doesn't talk about how his wallet was able to handle those first steps out into the big scary world of freelancing. He says it took time, and it took learning how to sell his services. But what do you do in the meantime, when you're still that baby freelancer with minimal experience and no nationwide network to draw on?

Kids, it's time to make a budget. Let's start with figuring out where your income's coming from:

Pack a Parachute

When I quit my 9 to 5 back in January, I had a couple regular side jobs that helped cushion the fall in income. When Kadie was starting her photography business, she was also working part-time. Freelancing -- whether you're working commercially or in a fine art field -- is choosing to go without the protection that working for a company provides. Having that alternate gig is a good way to make sure that when things get slow in your freelance life, you still have some cashflow - especially if you're trying to leave the days of renting a closet and existing on Ramen back in college where they belong. Just make sure that you're also leaving enough time to work on your business, and enough time to take care of your mental and physical health.
Feel like you're juggling too much now? Just wait!

Pack a Second Parachute

No skydiver jumps without that second emergency parachute -- and neither should you. I like to call this the "Oh Shit" Plan, because this is your backup bailout procedure, in case that arrangement you set up with Parachute 1 fails.
Let's get something cleared up right now: "failure" is not a bad thing. And whether that failure is due to unexpected expenses requiring more money than your freelancing and part-time job can provide, or you're not actually getting clients at the rate you need to in order to make ends meet, or maybe there's a health issue that gets in the way of work or requires better insurance than you can afford on your own, or you have to move, or you decide you hate freelancing, or any number of other possible scenarios -- it's highly likely that one of your "freelancing-plus-something" schemes will fail. And when that happens, you need to have a plan for how to recognize the failure early, and be able to pull out before you hit the ground.
For me, this meant having a very frank conversation with Chad regarding how many months we could afford not having any clients, and at what point of "business being bad" I would pack up my freelancing tools and go back to a full-time job.Whether you're in a shared-financial-fate -type relationship, or if you answer only to yourself and your wallet, it is incredibly important you have this conversation.
Which brings us to . . .

Make A Budget

Gee, who doesn't love crunching numbers? Well, Kadie might not, but still . . .

A budget is the bread and butter (literally) of any business venture -- and that includes the smallest of companies: YOU Inc. I like using for my personal budget and planning needs, and for tracking my business expenses and income. Shockingly, there's quite a bit of interconnectedness between the two, so it's useful to keep a separate bank account for your business. Quite a few credit unions and banks out there offer no-minimum checking accounts - take your time and look around for the best deal. is one tool that might help with that, and no, I'm not getting sponsored by any of these companies. (Though if they were interested . . . ?)

Shane talked about figuring out how much he needed to be making for the bank to feel comfortable selling him a house. This is a great starting point -- but of course then you have to make sure that you're actually making enough to cover your other expenses. Once you subtract what you pay in taxes and the cost of advertising and equipment for your business, it's time to start subtracting money for things like health insurance (yes, you should get this), paying off any debt, and a monthly deposit to a retirement account. Saving for retirement can seem like a waste of time, especially when you're under 30, but it doesn't have to be a huge amount to start -- just putting away $25 a month will set you up to have over $10,500 (without interest) by the time you're 65. No, that's not nearly enough to retire on -- but remember, as your business grows, you will be able to put more and more money away (If you want a rough estimate of what you actually are going to need to save, you can calculate it here). And honestly, you know and I know that a crazy night out with friends tends to cost $25 dollars or more - just skip one night per month, and VOILA, there's your retirement money.

Now that you've covered business costs, the "big future stuff" and the "big debt stuff," it's time to address the boring day-to-day stuff. Stuff like:
  • A Place to Live (Whether you currently rent or own, unless you're living off the grid, you need to find a way to pay for this.)
  • Modern Amenities (Like electricity, water, and gas. You never value them quite as much as when you don't have them.)
  • Transportation (Even bikes need maintenance. Make sure you have a monthly budget for gas and small maintenance expenses, as well as an emergency fund to cover the big things.)
  • Food (Do I need to explain this one? No, I don't think so. Do make sure that you're being realistic here - it's easy to underestimate how much you actually spend on late-night Mexican food runs)
  • Medical Expenses (Hopefully you don't have too many of these in your life. Still, it's good to be prepared.)
  • Personal Care (Soap makes you smell better. Smelling better makes it easier to meet clients. And friends, probably.)
  • Other Responsibilities (Have pets? Maybe a child? Yeah, probably better budget for what it costs to take care of them too.)
And let's not forget the fun stuff! I like to call this part of the budget the "Life Enriching Expenses." As John Mulaney taught us, money can't buy happiness, but it can buy 21 plays of Tom Jones' "What's New Pussycat."

    But seriously:
    • Socialization (Whether hosting a dinner party, bar hopping, or running 5Ks with your friends, it often costs money. Figure out how much it tends to cost you, and plan ahead.)
    • Entertainment (Rock shows, art museums, video games, buying monster masks to wear in public and freak people out, etc. etc. yadda yadda yadda.)
    • Emotional care (What things make you feel your best? New clothes, a massage, membership at a rockclimbing gym, monthly backpacking retreats . . . the possibilities are endless.)
    • What else?? (Don't worry if you can't get everything grouped into nice little categories. Having most things assigned to a budget will help a lot, and you can always create a catch-all fund for random expenses. The important part is that you plan for it)
     Ta-DA!! You now have a fairly-comprehensive budget.

    Show Me The Money

    "What do you mean, you're out??"
    The hardest part about making a budget, at least for me, is reconciling your outgoing expenses with your income. You don't want to get bogged down in debt -- ever -- even when funding the start to your freelance career (take it from someone who did it the wrong way: the money I'm spending each month to pay off my debt is eating up the majority of the money I make freelancing, and I'm pretty sure that's what regret tastes like). The good news is you don't have to get caught in that trap -- and you can even get out of it, if you're already there. is a site that helps you organize and prioritize your debts, and adding that payment plan to your budget can help you get in the clear. As a final note on debt, remember that just like cholesterol, there is such a thing as good, or useful, debt, and if you find yourself unable to pay for a large purchase up front, it can be worth checking out the loan options you might have available.

    Large purchases aside, you need to figure out a way to pay for your monthly expenses. When you come up short, you have two options:
    1. Make more money.
    2. Spend less money.
    Luckily, as a freelancer, you can absolutely make more money -- by raising your rates, by taking on more clients, and/or by scoring more hours at your part-time gig. Spending less money is trickier, but can be done -- look to your Life Enriching Expenses budget to see what you can cut or do less often, and make sure to shop around as much possible before spending the money in your Day-to-Day Expenses budget. For a whole ton of ideas for ways you can shrink your monthly budget, go here, or better yet, share how you save or bring in a bit more cash in the comments below!

    Grow Baby Grow!

    Once you have your current expenses under control, it's time to set your sites on the future of your business. If you want more clients, roll some of the money you make freelancing into new ways to advertise your business. You know how I heard about Imaginary Jane? A Facebook ad. Wonder how many clients they got from that? If you have plenty of clients, then do what Shane did - raise your rates! As you make more, you'll be able to relax your budget a bit . . . and who knows, maybe you'll end up making $250 an hour too.

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