3 ways to prepare financially before going freelance
This article first appeared on MoneySmart's 3 ways to prepare financially before going freelance
Lately, I've been getting lots of emails from readers asking for advice on how to transition to freelancing. It's been two years since I left my job to freelance full-time, and in that time I've learnt a helluva lot more than I thought I would have to.
I had to go through months worth of efficiency hacks before finding methods that worked for me and helped me find some semblance of work-life balance, figure out how to work from home without getting distracted and learn how to set prices, invoice clients, find work and not get screwed over.
But these are things you'll learn as you go along. The biggest problem aspiring freelancers face is that they're not able to get to the point where they can afford to quit their jobs and dedicate their time to their new freelance careers.
I can't say there's a magic formula that will work for everyone, but here are three things I learnt in my own transition from full-time employee to freelancer. Take from them what you will.
The less you spend each month, the more risks you can afford to take
When I first quit my job, I was earning less than one fifth of my previous salary. When people hear that, they think I must have been very daring, and someone even accused me of having rich parents.
In fact, of the many fears I had at the time, making ends meet each month was one of the more insignificant ones. And that's because I was confident I'd be able to spend less than I earned, even on my greatly reduced income. I wouldn't have to make any lifestyle changes, because even as an employee with a healthy salary I'd been spending like someone who was earning much less.
I am sure everybody at my previous workplace thought I was a weirdo as I used to bring my own food to work and never had lunch at restaurants with colleagues. I never took taxis after midnight, using a cheap motorcycle (back when the COE was actually reasonable) or Night Rider buses instead. I started spending more time with people who didn't mind drinking Tiger beer at open air hawker centres.
That kind of lifestyle isn't for everyone, and some of you might have heavier financial obligations like kids etc. But there are probably things you wouldn't miss too much if you gave them up. The idea is not to wait till you quit your job before you start to downsize your life. I had already been living on a budget for close to five years, long before I even considered freelancing.
If the thing that's holding you back is how you will survive in the early days before you have a stable income or figure out what makes money, my advice is to start living a simpler life now. More possibilities will start to present themselves when you're in the position to consider them.
Get your finances in order before you quit your job, not after
Part of the reason freelancing is so stressful when you first start out is the fact that you're all alone in this. You have no colleagues to turn to, no seniors who can show you the ropes, and nobody to commiserate with during lunchtime.
It's going to take a lot of effort and courage to stay afloat in the first few months of your freelancing journey. You do not want to add to the stress by having a shaky financial situation.
That's because your financial situation is going to be a lot more precarious as a freelancer than as an employee. If you get dengue fever and are stuck in the hospital for a week, you simply earn nothing for that entire week.
If you don't have a healthy emergency fund (you'll probably need a larger one as a freelancer than as an employee), are carrying a lot of debt, whether credit card or otherwise, don't know how to budget or don't have private medical insurance, you probably need some time before you're really ready to go freelance.
Be prepared to do some things differently
When you go freelance, your life is going to diverge in many ways from the lives of your employed friends. Ask anyone who quit their day job and became a private tutor, business owner or freelancer and they'll tell you the changes extend well beyond just your work.
Hence, you have to be prepared to do some things differently when it comes to your spending choices or planning your finances.
For instance, if you intend to work from home, it may make sense to sell your car, since you no longer need to commute on a daily basis.
When you're no longer a salaried employee, switching from the OCBC 360 deposit account to the OCBC Bonus+ savings account might make sense, since you will no longer be earning a salary (you need to deposit a monthly salary in order to qualify for the highest interest tier offered by the OCBC 360 account).
A membership to a gym in the CBD is completely pointless if you are not working in the CBD.
And with a flexible schedule, things like cooking at home, not having to rely on childcare and staying out late on a Monday night become possible, and this will affect your spending patterns.
And that's just the start. Eventually, you might decide to invest in a coworking space subscription, work remotely from a cheaper country or channel your time and resources into another side business. Just be aware that there is no fixed template and your employed friends will probably be at a loss or unable to relate when you ask them for advice.
That means you're forced to come up with customised solutions for your own life, some of which people are going to question. And that's actually one of the most awesome things about freelancing-you have so much more space to design your lifestyle and determine your own spending patterns.
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