Creating an operating fund is essential for any freelancer. As a freelance writer or business owner, you know that work is not always going to be consistent. You’ll occasionally experience feast or famine scenarios. You’re either going to be so busy that you’re juggling your time between projects or you’re going to experience lulls.
Downtime is great, and as freelance writers, having a little bit of downtime to defrag is essential, but you always have to be aware that a client (or two) that you’ve been counting on may disappear, or that once that job is completed, a client will be gone. Then you start to stress because for a freelancer, lulls in business equate to no income. That’s where your operating budget comes in.
Creating an operating budget
Your operating budget or fund is the amount of money you need to pay your bills on a monthly basis. Whenever possible, tuck extra money into that operating budget. You may not think you need it now, but you’ll be glad to know it’s there if and when you do. A number of freelancing experts suggest saving up to nine months’ worth of living expenses, but for many freelancers that’s tantamount to impossible. So take it one step at a time.
Start with a one month operating fund. In addition to tucking money away for self-employment taxes, potential health expenses, and an emergency fund, an operating budget is designed for just one thing and one thing only. Paying your bills when you experience those lulls in business. Your operating budget should not be used for taxes, health expenses, or new tires (that’s where your emergency fund comes in).
For those just starting out freelancing, you may only be able to tuck maybe 5% or 10% of completed project payments into your operating fund. Keep at it. You can’t imagine how good it feels to know that you’ll be able to pay at least a month’s worth of bills if you experience a lull. After you have one month of operating funds tucked away, go for two months, and then three.
An operating fund is not just money. It’s peace of mind for a freelancer.