4 Ways To Achieve Financial Stability as a Freelancer

Freelance work doesn’t have to mean financial instability. Whether you freelance full-time or part-time, thoughtful financial planning and money management skills can set your business—and you—on a sounder, more sustainable path.

Start with these four tips to reach financial stability:

Tip #1 Prepare profit & loss statements

Profit-and-loss statements, also called P&Ls or income statements, can help you track your results and make your business more profitable.

You don’t need a business degree or a fancy bookkeeping system to prepare a P&L. All you need is a record of your receipts (money you received from your clients) and your business expenses (money you spent to get the money you received) for a specified time period. Total your receipts, subtract your expenses, and the result is your profit (or loss). P&Ls may be monthly, quarterly, or annual, or you can use other time periods that make sense for you.

One lesson I learned from years of preparing monthly P&Ls was that my freelance writing income tended to peak in March and April each year. That was because come spring—a.k.a. “the home-buying season”—my real estate clients wanted more stories than they did in other seasons. As a result, I avoid planning springtime vacations that could hurt my profitability.

Tip #2 Use income to acquire assets

It’s a given that you should set up savings accounts for emergencies, medical expenses, retirement, and other future financial needs. But you don’t have to stop there. The next step is to set aside income to invest in assets that can produce more income.

You don’t need a financial planner or advisor to get started with stocks, bonds, mutual funds, real estate, or other investments. Educate yourself, and when you’re ready, jump in. Over the long term, you may earn as much—or more—from your investments as you earn from your labor.

Tip #3 Be a generalist and a specialist

Generalizing and specializing may sound like a contradiction, but the real secret to long-term freelance success is to specialize without shutting down broader opportunities.

Early in my freelance career, I wrote exclusively about real estate, including housing and commercial property. Over time, that specialization proved too narrow because real estate is notoriously cyclical.

During the industry’s periodic downturns, I learned to write about other subjects, including banking, insurance, and small business. That enabled me to stay focused, but in a way that was both generalized and specialized. You can also use your specialized knowledge to create passive income opportunities like an online course or e-book.

Tip#4 Manage your cash flow

Whenever you have a “big” month in which you earn more income than usual, you may be tempted to spend it. Spending may make sense, especially if you’ve missed important payments during leaner months. Once you’ve dealt with those, however, it’s time to think not about splurging, but saving ahead for the next month when your income may be lower.

Open a savings account that’s dedicated to cash-flow management. When you have more income, funnel it into this account and keep it out of sight and out of mind, so you won’t be tempted to spend it. When you have less income, tap your cash flow management account to tide you over until the next month when you earn more.

The beauty of a cash-flow management account is that it can help you find financial stability and smooth variable income without using your emergency savings. That’s important because a cash-flow crunch—more cash going out than is coming in—isn’t an emergency. It’s to be expected and can be planned for in advance.

Other cash-flow management strategies include:

• Sending invoices to your clients promptly
• Following up quickly when your clients don’t pay your invoices on time
• Paying your bills slowly, but not late
• Planning ahead for large annual expenses, such as insurance premiums, property tax bills, and holiday gifts or travel

With a positive mindset and these techniques, financial stability shouldn’t be out of reach even when your income is variable.

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