The Importance of a Financial Reserve to a Freelancer

Looking back at my earnings over the past year on a monthly basis I noticed that there is a difference of 700% between my highest and lowest earning months. How does this happen? Two reasons; some months I simply earned more than other months and some clients pay slower than others.
While my earnings may differ wildly my expenses are pretty consistent and inflexible. My daughter isn’t interested in hearing that she can’t go to dance class this month because daddy is in one of his low months and the cashier at the supermarket could care less about the fluctuations in my monthly income.
How do I deal with this situation? Strict financial self-control. I calculated what my monthly income has to be to meet my monthly expenses. In months when I earn more, I put this “excess” money away in an account that can be easily accessed. When my earnings are down I draw on this money. The idea is to not go into a state of euphoria in a good month and go out and buy a solid gold dog polisher, and on the other hand not to hesitate to draw on your short-term savings in a down month
Let’s not forget the unanticipated major expenses and retirement money. For longer term saving I have a certain amount automatically taken from my account each month and include this money as part of my fixed monthly expenses.
A note to people starting out as a freelancer–In the beginning you won’t have many good months. This means that before you try your hand at full time freelancing you will have to build yourself a war-chest.


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