5 Financial Tips for Freelance Designer – Tip #3
Over the next several weeks, I will outline some financial tips to assist you and your freelance business. Note I am not a certified public accountant (CPA) or an attorney, these tips have help me to stay in business for over 10 years. I would recommend you seek professional advice, these are just tips which has help me. Previously I discussed Profit and Loss Statement (P&L) and how that is very important to know. Next I had a blog post about some applications (apps), which can help you know your P&L at all times. This post is about income and how it is not the only thing that matters.
Many motivational speakers have outline how income is not the most important thing. Income does have its role, most of us do not want to be homeless or starving. But income should not be the only factor, and expenses need to be placed on the same level of importance.
I know a couple of freelance designers. Both are considered successful. However, they do not share the same financial philosophy. Designer A (we will call him Fred), is very successful. Most of his projects are $5,000 and up. He generally generates about $80,000 and up in terms of income annually. However, Fred spends over $80,000 in expenses. He drives a new car, as well as his wife. He has a couple of teenage kids and they own a car. He lives in a very expense house. He takes a couple of vacations a year, to exotic places like Hawaii and Madrid. He is constantly under a lot of stress…while he makes a lot of money, he has a lot of expenses.
Designer B (we will call her Mary) is very successful. Mary charges around $1,500 and up for her projects. Mary has a support and maintenance plan for most of her clients. She receives around $3,000 monthly for her support plans. Mary generates about $9,000 a month or around $80,000 annually. She drives a modest car. Her husband drives a modest car. She has a couple of teenagers, who share a 10 year old car. Her house is nice, but not over the top. Her family takes several vacations, mainly for WordCamp (which she can expense off) . Mary has a nice saving account and retirement plan. She is not under a lot of stress.
While income is very important, what you do with that income is more important? Make sure your income falls in line with how much your expenses. You should do a monthly or quarterly assessment about all your expenses. If you have not used that service, then you need to end that relationships. Even if it means that you have to pay a termination fee. All your long term expenses, should be planned out…do not create expenses on a whim. It is a hard concept, but you will feel a lot better about your financial self.
Image courtesy of Sharon McCutcheon.
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