Work / life balance for freelancers

Financial Independence For Freelancers

By Brennan Dunn

You know it’s important to save money.

For retirement. For unexpected big expenses. And — especially as a freelancer — if you end up in a prolonged dry spell with no client work.

Even though we all know that we should be saving, few people do. In fact, 62% of Americans have no money on hand for emergencies. It’s bad. Really bad.

At one time, I was one of those 62% of Americans.

I took the approach that I think a lot of people in our industry do: My skill-set is in demand. I won’t want for money anytime soon. I can budget against the money I’m going to make.

Have you ever opened up your calculator app and started plugging in numbers from invoice payments that you knew were coming?

Have you summed up a bunch of future invoices you’d be sending and thought, “I’m fine”?

Have you budgeted using money you actually don’t have yet?

I have. Way too many times to count.

And it’s bit me… hard.

Sometimes it was because I needed money now (which I didn’t have on-hand) and I couldn’t float it on a credit card. Or some of that future money ended up being imaginary, which affected the very real bills I expected to pay with that cash.

Like many young 20/30-somethings, I just ignored it all.

I’m fine. I have a comfortable life. I’ll be OK.

Most of my bad business decisions have had to do with money (or a lack thereof)

In my early years, I sometimes took on consulting projects for half of what I quoted because I needed the money and I needed the work.

Once I ran a deeply discounted sale on one of my courses because I needed a new roof and didn’t want to deal with getting financing.

I know, I know.

This is a total #firstworldproblem. We should be happy knowing that we can make money happen when and if we need it.

But in retrospect, so many of the deals I’ve been involved with have ended up financially horrible because my personal finances were so bad.

And I’m not alone in this.

One of the things we work on in The Blueprint is positioning and coming up with a service offering that solves a specific problem.

Conceptually, most students get it.

They understand why strong positioning works, but they don’t want to say “no” to anyone. For many freelancers, turning away clients equates to their checking account drying up. And, therefore, it’s hard to actually make that next step and actually niche themselves.

What you need is “F*(& you!” money

If most freelancers were financially secure you’d see a lot more successful freelancers.

More would be willing to raise their rates, niche themselves, go all-in on a productized service, mandate Roadmapping in their business, and more.

But because so many are 100% dependent on cash flow to survive, they don’t want to upset the apple cart. They continue doing what they’ve been doing. It’s a vicious cycle.

However, if they didn’t need this next contract, I’m almost certain making big (and strategic) changes would come a lot easier. Money does a hell of a job restraining us from making smart, big-picture changes.

So that leads us to the root of the problem: jumping off the cash flow hamster wheel.

Financial Independence

This is really what we’re all looking for.

Not getting rich quick and kicking back at a beach resort in Bali, but rather not being beholden to bad business deals and the uncertainties of life.

I’ve been fascinated by the Internet communities (like this subreddit) that have sprung up around financial independence over the years. The majority of them aren’t targeting entrepreneurs — instead, they’re focused on helping salaried employees retire early.

I think there’s a lot we can learn from that movement (I have), but there’s also plenty we can ignore.

I’m going to assume three things about you:

  • You don’t mind doing what you do, and you aren’t looking to fully retire anytime soon.
  • You have ways of earning money that aren’t limited to just a salaried job and buying investment properties. (That is, you have a service to offer clients.)
  • You actually enjoy buying lattes and other nice things and don’t want to slog it out until you reach a state of financial independence.

The way most people achieve financial independence is to spend less. What they make each year is typically more-or-less fixed, so the only way to save more is to drastically reduce their expenses.

And they take the delta between what they earn and what they spend and invest it. Assuming a ~5% (post-inflation) annual yield, they continue stashing money into investments until the amount their investments make each year outweighs the amount they take out of the market annually, which is the money they use to survive.

But as freelancers (that is, you own a business that sells a service to customers), you have more control than salaried employees. You can control both your income and your expenses.

You’re in a great position to quickly become financially independent. You just need to setup systems for helping you reach that point. I want to help you get to the point where you have F-you! money and aren’t afraid to do the things you need to do to take your business and your life to the next level.

Set up your infrastructure

I’m really into this tool called Betterment. (It’s US-only, so I’m not entirely sure if there’s an equivalent for those who are outside of the US… sorry!)

It lets you setup a bunch of buckets and assign a risk tolerance to each. Higher risk buckets are tied to stocks, and lower risk are tied to bonds. You just need to create the buckets, fund them, and they do the rest. Behind the scenes, they’re investing in bonds and index funds (like Vanguard ETFs).

Currently, I have a “Build Wealth” bucket — which is all stocks. I also have a bucket for a downpayment on a new house, an emergency fund bucket (which is 100% bonds), and also my IRAs.

Each week, I have it automatically deposit money into each of these buckets. And whenever I get a big burst of cash, like after completing a consulting gig, I try to deposit a big chunk of that income into these buckets.

We’ll talk about some strategies next on how to fund your investment accounts.

(BTW, if you sign up for Betterment using my link you get 6 months free and I get a month free. Hint hint 🙂 )

Strategy #1: Invest ALL Roadmapping proceeds

Many of you are using Roadmapping now to financially qualify new clients. This is work you’ve probably already been doing (for free)… but you’re now getting paid for it.

You know the goal isn’t to make tons of money with Roadmapping. In fact, the money isn’t even that huge of a deal. The goal of Roadmapping is to help you convert more clients and to set yourself up as a consultant instead of just a “doer”.

But you’re still getting paid, right?

And most people who are selling Roadmapping are charging something like $500-$2,000.

Ignore this money. Dump it ALL into something like Betterment.

Let’s say you sell 2 Roadmapping engagements a month at $1,000 a piece. If you were to wisely invest $2,000 a month into an account that yields about a net of about 5% a year, you’re sitting on more than $400,000 in 10 years.  (Or more than a million in 20 years.)

You’re not only getting all the perks of Roadmapping — more high-paying clients, more creative freedom on your projects, and so on — but you’re also now investing thousands of dollars a month toward achieving financial independence.

Strategy #2: Raise your rates and don’t change your standard of living

We all want to make more money, right?

But to what end?

A report put out by the Wall Street Journal claims that peak-happiness is hit at $75,000 a year. Making more money by raising your rates will put more money into your pockets, and money sitting in your checking account wants to be used. You’ve probably heard of the power couples who bring in $500k+ a year but are literally surviving paycheck-to-paycheck. Again, money wants to be used.

I often advise people who want to start building their own products. Many of them say that they don’t have the time — they’re billing their clients Monday through Friday and have no time to invest in building their own stuff.

My response?

“Double your prices and cut your availability in half. Voilà… plenty of time to build your product!”

But there’s another option.

Double your prices and put all that extra money toward financial independence.

If you’re making about $3,000 a week consulting and could start charging $6,000/week, you’re now able to save $12,000/month toward financial independence. And you don’t even need to go that extreme — enjoy a few more nice dinners a month and splurge on that new car. Even if you could only end up with $1,500 a week to save that’s still ridiculously good in the grand scheme of things.

Let’s assume you’re doing Roadmapping, bought a nice car, and are taking your spouse out for more steak dinners. The $2,000 a month you’re stashing with Roadmapping added to the $6,000 a month ($1,500/week in net new income) you’re investing after having raised your rates turns into about $100,000 after just the first year.

Do that for another 10 years and you’re at $1.4 million dollars.

That’s F-you! money… and it doesn’t take too long to get there.

Seriously though, this is the stuff that makes the financial independence bloggers’ heads spin.

They’re accustomed to working with people on fixed salaries who expect maybe getting a 2% raise each year and have to cut their cable subscription, put a halt to Starbucks, sell their car, and so on in order to achieve financial independence.

As a freelancer / business owner, you have SO much leverage.

Strategy #3: Cut stupid expenses and reroute them to automated investments

So far I’ve only focused on making more money and sending new revenue toward your financial independence goals.

…And I’ve taken a few jabs at people who think savings means a minimalist lifestyle devoid of luxury.

But you’re probably spending money foolishly on stuff you really don’t need. Auditing your expenses, both personal and business, and eliminating things is a smart move to make. I did this and found a whopping $2,800 a month in things that I’m paying for that I don’t need. Most of these were business SaaS products that I just wasn’t using and I was able to slash a ton of miscellaneous business and personal expenses.

I’m not pretending that I now have $2,800 in “free money” each month. Instead, I’ve done a dollar-for-dollar rerouting of that money away from American Express and toward Betterment.

One thing I really like about Betterment, which is great for people who have more predictable income (like employees or people who sell productized retainers), is that you can set up automated deposits. Each week, I have $200 going toward my safety net, $200 toward a new house, and $300 into my “Build Wealth” goal.

The money I was spending is now pushing me $2,800/month closer to total financial independence. And this is on top of the consulting and product sale one-offs that I also dump into Betterment.

Am I going to be blogging from a tropical island in a year or two?

It’s easy to confuse financial independence with location independence, being “nomadic”, retiring in your 30s, or whatever else.

And that’s fine. But for me, I plan on continuing to raise my beautiful kids, do awesome business-y things, and take the occasional vacation.

I want to be financially independent so I can retire for a month, a year, or a decade if I need to. I could get sick. Something could happen to a loved one. Who knows what’s going to happen, and living my whole life within my cash flow is a risk I’m not willing to take.

Because every threat to my marriage, the relationship I have with my kids, my happiness, and even my health has ultimately boiled down to something related to money and stress.

And I don’t want to keep having that happen.

I don’t want to spend against what I think will happen. Instead, I want to continue living within my means while being able to show my kids the world, or upgrading my kitchen without needing to deal with borrowing money or stressing out.

And having talked to thousands of freelancers over the years, my goals aren’t unique.

We all want independence. But we all also want security.

Being able to make a great income now and having a pipeline of clients is a fantastic way to gain that security, and I’ve helped a lot of freelancers and agencies do exactly that. But as someone who’s run his fair share of businesses over the years, I know how important it is to hedge for uncertainty.

I don’t know your financial situation, and I don’t know if and how you’re saving for the future. But I’d encourage you to really think through and see how you can apply what I covered in this article. Why? Because it took me a ridiculously long time to start doing any of this.

My investment strategy for years boiled down to “Yeah, I’ll put money in an IRA this year…” only to realize that, by the end of the year, I couldn’t afford to put anything into it.

Start with just auto-depositing a few hundred dollars a month into a safety net account.

Or work to increase your invoices by even just 10%, and siphon that additional revenue directly toward your financial independence.

Whatever it is you end up doing, the most important thing you can do is start.

A few resources I like: