What causes a freelance writer to go out of business?
There are many answers to that question, but money problems are high on the list. Lots of freelance writers struggle with their finances.
Freelancing is different than working for an employer. Those differences take many freelancers by surprise. They can lead to some unpleasant financial situations.
I call those unpleasant financial surprises money traps. A freelancer experiencing financial difficulty can feel trapped.
In this post, I share ten common freelance writing money traps and explain how freelance writers can avoid them.
Money Problems You May Not Expect
Here are ten financial problems that you may face as a freelancer:
- Feast or famine. This has been written about often, but that doesn’t make it any less of a problem. Freelancers often experience an up and down pattern of receiving income. Good financial months (feasts) alternate with bad financial months (famines). Avoid this problem by making sure that you have enough savings to see you through the bad months. Also, continue marketing your freelancing business even when you are busy.
- No savings. A high percentage of freelance writers start freelancing with little to no savings account. Not having savings is a bad idea for anyone, but it’s an especially bad idea for a freelancer, who often face gaps in their income. Having an emergency savings account can mean the difference between continuing on as a freelancer and returning to a traditional job. Try to set aside enough to cover your expenses for several months.
- Not planning for taxes. Freelancers face some unique tax challenges. First of all, your clients will not withhold federal income taxes. Next, you need to pay the Social Security and Medicare taxes that an employer would normally pay. (This is the self-employment tax.) Taxes owed often derail new freelance writers who are used to having their taxes withheld by an employer. To avoid this trap, pay estimated quarterly taxes.
- No regular income. As an employee, you had a regular paycheck. When payday came, you pretty much knew how much money you’d receive. The reality for most freelance writers is that you have no regular income. Your income is unpredictable. This can make it difficult to qualify for big-ticket purchases such as housing and cars. Keep accurate income records to show potential creditors.
- Depending on one client. Do you count on a single long-term client for regular projects? Do you get over half your income from this client? If so, you could be depending too much on that client. The reality is that your freelancing client, who you depend upon for work, could drop you at any moment without any notice. Maintain a healthy balance of diverse clients. Target additional clients and scale back what you do for the one you rely too much on.
- Being impressed by a large number. Everyone wants the “big” projects. But just because a project pays thousands of dollars, don’t assume that it’s a good one. Some projects with large budgets demand an unreasonable amount of work from a freelance writer. To avoid being caught by this trap, always get a detailed scope of work. Estimate how many hours you think the project will take and divide the project budget by that number.
- Charging too little. New freelancers, in particular, are often so thrilled to get their first project that they set their rate too low. They may do this because they lack the confidence to charge what they are worth. Or they may underestimate the amount of work required. Either way, low rates are bad news for freelancers. Make sure that you know what you’re worth. Be sure to get a complete project scope before quoting a price.
- Good months. It seems to fly in the face of logic, but having some good months can actually cause problems for a freelance writer. A problem occurs if the writer starts to rely on their higher income and spends most of what they make. Then, if their business takes a dip, they are caught by surprise.
- Spending before you’re paid. As a traditional employee, you knew when you’d get paid. As a freelance writer, you’re not sure. It can take weeks and sometimes even months before you receive a final payment for a writing project. Requiring clients to pay part of the project fee before you start work insures that you get at least something for your efforts. Also, always use a contract for your freelance writing projects.
- The part-time freelance writer. Part-time freelance writers have their own unique trap. Because they often have another source of income, a part-timer may feel that the other traps don’t apply to them. They may feel that it’s okay to rely on a single client, or to charge less than they are worth. This attitude can come back to haunt them. They may attract lower quality clients with a lower rate or they may have trouble if they decide to freelance full-time.
There are many resources to help you avoid financial problems. If you’re struggling, it’s a good idea to look into your options.
More Help With Freelance Money Traps
There are some great financial tools and resources available that can help freelancers with their finances. Here are three types of resources and some examples of each.
- Personal budgeting software. Using budgeting software helps you to keep up with your spending. Try these tools: Mint, YouNeedABudget (YNAB), or Levelmoney.
- Rate information. It’s important to know how much to charge for your services. Compare your writing rate with these sources: Editorial Freelancers Association Rate Chart, Who Pays Writers, or Contently’s rates database.
- Contract creation tools. Having a contract helps to protect you from many freelancing problems. Try these tools to build a good contract: Quote Roller (affiliate link, I receive a small fee for each purchase), Bidsketch, Freelancers Union Contract Creator.
These are just a few of the tools out there that can help freelance writers. The key is to find the right tool for your situation.
Have you fallen into one or more of these common freelance writing money traps? If so, how did you overcome the trap? Share your story in the comments.