How Savings Impact Freelancing
Last time I asked you to consider how much savings would you need in order to take a STRESS FREE three month sabbatical. The goal of this exercise seems pretty straightforward right? We’re just trying to determine how much you need to save to start freelancing full time. But there’s actually a secondary realization here.
Why save to start freelancing?
- It’s good to have backup when starting a new endeavor.
- You may be completely miserable at your job but it’s better than going broke.
- You’ve made a compromise with yourself and decided, “I’m going to temporarily stick to this crappy gig but I’m also going to save so I can start freelancing. With the money I save I’ll have a backup when the income slows down.”
If this is what you’ve considered, I’d say congratulations you’re almost there.
Head fake! You’re managing fear, not risks
The real reason you’re saving money isn’t to mitigate the risk of your income slowing down, it’s to mitigate YOUR FEAR. What will happen if I start freelancing and lose clients? What if I go broke and fail? These feelings are completely natural but it’s essential to notice the how much of an impact money can have on your emotions. This money/emotion relationship is the very reason we have financial advisors, people whose job is to help you make objective decisions with your money.
News flash! Money has an impact on our behavior.
What does this have to do with freelancing and your savings? Everything! If you’re short on cash, you’re going to be afraid of going out of business. If you’re afraid of going out of business, you’re going to take the next freelancing contract you come across. You won’t care if the terms are terrible, all you’ll care about is relieving the emotional pressure you’re feeling from the FEAR of failing.
all you’ll care about is relieving the emotional pressure you’re feeling from the FEAR of failing.
Now let’s take that scenario and flip it on its head. You’ve got a pile of money you can use to live comfortably for three months. A new gig comes around, it sounds like an awesome collaboration but they’re asking you for a discount on your rate. Suddenly with savings you’re no longer desperate and you can think things through more objectively. Maybe the rate hit will result in more leads. Maybe you should sit on the deal for a week. Maybe you should renegotiate and see if there was something else you could compromise on.
Will having savings prevent you from stumbling in your first couple of months of freelancing? Nope! But it will help you think about things more objectively, less emotionally.
So how do we save?
So how do we save? There are a ton of schools of thought on this. You could put away 5% each month. If you’ve got a significant other that works you could try and live on one of your incomes while the other’s goes straight to savings. My beef with all of these approaches though is that they’re likely to impact your lifestyle.
The best approach in my opinion is to just start freelancing part time. You want to do it full time eventually, why not ease your way into it? Just make sure all that money goes into a separate savings account!