Chances are you’ve become a freelancer because you’re bloody good at what you do, and you love doing it. It’s pretty unlikely that you became a freelancer because you love financial management, book-keeping, watching cash flow, and all the other financial joys that come with being a solopreneur.
Financial stress is a thing, and if you’ve never experienced it, you’d be rare species indeed.
There are 3 main types of financial stress that I see on a regular basis:
Inherited financial stress is the most common and debilitating. It is experienced by those who have grown up in households where their parents regularly argued and fought about money. Money therefore becomes this stressful topic, and so the thought of sitting down and doing any sort of planning is about as attractive as volunteering to have a root canal done by a first year trainee dentist.
Those suffering inherited financial stress tend to follow one of two patterns. Either they put their head in the sand – they don’t open their superannuation statements, don’t budget, and certainly don’t discuss financial matters with their loved ones.
Alternatively they go to the other extreme, and micro analyse everything, to the point of complete paralysis. They’re convinced that whatever decision they make, it will be the wrong one.
The next type common type of financial stress is that caused by debt. In 99 out of 100 cases of debt induced financial stress, credit cards will be a central element. And yes, that is intentionally plural – there’s never just one! Often there’ll be a car loan and perhaps a mortgage, but credits cards certainly seem to be the gateway drug to debt related financial stress.
The final form of financial stress that I see I’ve somewhat imperfectly termed longevity. This manifests itself in being stressed about the normal ups and downs of investment markets – actually not so much the ups, but definitely the downs.
So what can you do to prevent financial stress from crimping your freelancing success?
The first thing to do is have a separate bank account for your bills and regular expenses. As a freelancer, your income is “lumpy”. Knowing that as bills come in, you have the cash there to pay them, is an excellent start to alleviating financial stress, and importantly, not needing to hit the credit card when the car rego comes in.
Look at your online banking and determine how much you spent on regular bills over the last three months. Divide this by three, and then round it up to the nearest $100. Once per month, you are going to transfer this amount from your normal bank account across to your bills account. The timing will depend on when you normally get paid, but ideally you’d do the transfer as soon as the income comes in. If your freelancing work produces regular, predictable income, you could set this up as an automatic transfer in your internet banking.
The next thing is to clear your unproductive debts. Determine which debt is the most expensive and focus all your attention on getting rid of it. Once the first one is cleared, focus all your repayment capacity on the next. As your debts reduce, the interest costs will come down, which will enable you to clear debt even more quickly. This debt repayment strategy is sometimes called a snowball approach. Use automatic transfers as much as possible to avoid the risk of weakened will power.
Another useful way to alleviate financial stress is to have some projections done, so that you have a good sense what the long term outlook is. You’ll find that your super fund web site will have a projection tool so you can get an estimate of where your retirement savings will end up, and sites like the government’s Money Smart has some good calculators for this purpose too.
Worst case planning is another great way to reduce worry. This is where you list out the biggest worries that you have, and then determine what action you’d take if those things actually occurred. The actions may not always be pleasant, but just knowing that you have a plan can remove that dark cloud floating around in the back of your brain.
Finally, don’t be afraid to talk about your finances with your partner or other loved ones. Especially for couples, you’re a team, and chances are, if you’re worried about your finances but too afraid to discuss it, so is your partner. Don’t pass your inherited financial stress down to your kids.
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