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Freelance Finance


Being a freelancer has many benefits. You can pick the jobs that youlike (sometimes), work on varied projects and have the freedom to comeand go as you please. In fact, those attributes make you the envy ofmany corporate workers. The biggest downside, which is not publicizedto those wanting to break into the entertainment business, is theuncertainty of when and where their next job is going to come.To deal with the financial uncertainties of being a freelancer,building an adequate cash reserve becomes paramount in reducing thestress that’s inherent in the career you’ve chosen, whether you’re oneof the fortunate ones that is looking for the ability to fund time offbetween projects, or you simply want to be prepared for the inevitable”unplanned vacations” that come with this business. In either case, thegoal is the same; to have enough money set aside in cash to get youthrough your periods of unemployment (voluntary or otherwise) withouthaving to resort to tapping your credit cards or raiding yourretirement accounts.Determining your required cash reserve is more art than science. Youwant to keep only enough in reserve to cover you during times ofunemployment, and to guard against unexpected major expenses. Anythingmore than that is an inefficient use of your investment dollars.So what is an adequate cash reserve? As with most financial planningtopics, the answer is “that depends.” For most salaried employees,experts will tell you that three to six months will suffice withsalaried two-income families at the low end and single people at thehigh end. As a freelancer, generally speaking your number will mostlikely be higher than salaried employees with similar income andexpenses, and will truly depend on your work history and goals. Forexample, if, over the past few years, you’ve consistently had threemonths of unemployment, you should probably keep somewhere between sixand nine months in reserve; three to get you through unemployment andthe rest as your emergency fund for unexpected major expenses. If youwork steadily but want to be more selective about the projects you takeor you’ve dreamed of taking one month off each year, a minimum of fourmonths reserve is recommended. The upshot is that, although rules ofthumb are fine, your cash reserve requirement should reflect yourspecific situation and should be developed within the context of youroverall financial plan.Building your cash reserve will take time. The best piece of advice wecan give is that, after you develop your budget, you have the moneythat’s earmarked for your reserve automatically deducted from yourchecking or savings account each month. After a month or two, ourexperience shows that most people don’t miss the money and simplyadjust their spending to a slightly lower amount.Next month, we’ll go over how to develop a manageable budget that willhelp you reduce stress and achieve your financial goals.

Written by Rob Jupille

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