Freelance money management tips

Greetings, Training for Translators readers! My new class, Direct client research lab sold out in one day (and, speaking of impostor syndrome, I wondered whether anyone would sign up!); just reply to this e-mail if you want to be on the wait list for the next session.

Money management: A timely topic

Have I mentioned that it’s an uncertain time right now? We don’t need to reiterate the reasons, but whether your business is going well or going poorly, it’s a good time to think about money management. If things are going well for you, it’s a good idea to save up some of your surplus in case things start going less well. If things are going poorly, you may want or need to get a handle on your spending. Here are some financial management strategies that I’ve been thinking about lately:

Know the cost of running your business

This is one of the most basic freelance finance tips I learned from JT Hine and his booklet I Am Worth It, back in the day!! Your break-even point is the cost of running your business. Here’s a rough look at mine:

• $4,800 per month for my base salary and all taxes (approximately $2,800 to me and $2,000 to taxes)
• $2,500 per month for additional salary that I take as an S-Corp profit draw (don’t worry if you don’t understand what this means; it’s only important if you have a corporation)
• $500 per month for office rent
• $500 per month to my retirement account
• About $1,000 per month, amortized over the course of the year, in other expenses: accounting, website management, website hosting, Zoom, Mailchimp, Thinkific, QuickBooks, professional association dues, professional development, cell phone.  

First observation: this is a lot of money! My “basic expenses” are more than $9,000 per month, and this doesn’t include contributions to business savings, additional retirement contributions (which I’m trying to do now that I’m in my 50s), travel to conferences, last year I had to unexpectedly buy a new computer, I got a new website, etc. etc. But you really can’t make any other financial decisions without knowing how much it costs you to run your business. Start there!

Infrastructure tips

Take a look at your financial infrastructure: where you keep your money and how you move it between accounts. I hadn’t thought about this for a while, until the topic came up during my monthly alumni question and answer session. Here’s my account structure:

• Business checking account (mine is at Chase Bank, which has excellent business services but also a high minimum balance to avoid service fees): This is my main account, where I receive or deposit everything I earn and out of which I pay all of my business expenses.
• Business savings account (also Chase): You should definitely have one, and it could serve a few purposes. Mine is purely my rainy-day fund (I keep at least $10,000 in it; more on this later), but you could use it in other ways:
  • If you want to earmark money for taxes (you should never be caught owing money for taxes with no way to pay it), transfer a percentage (probably 25-50%, depending on your tax bracket and where you live) of every client payment into this account.
  • Establish a paid vacation fund; this is a good motivator to take time off and reinvigorate yourself! It’s hard to take time off if you literally can’t afford it; funneling money into a paid vacation fund can help.
  • Start saving for a conference you want to attend, or a professional development experience you’d like to pursue.
  • Any other creative use that motivates you to save money: I put all of my book royalties into my business savings account, and then I use that money to pay for the production costs of the next book.
• Personal checking account: I pay myself my salary into this account. For me, that’s about $5,300 per month which covers all of my personal expenses and allows me to put money into personal savings.
• My personal “secret savings account”: I do this weird thing, but maybe you want to do it too. I have a Capital One high-yield savings account that automatically deducts $25 per week from my personal checking account. It’s such a small amount that I don’t miss it. If I need an emergency cash source (last winter I managed to back our car into a tree despite multiple backup cameras and warning sensors…hello body shop bill), it’s there. If I don’t, I have $1,200 of “free money” in that account at the end of the year, without even realizing that I was saving it.
• My Schwab brokerage and retirement accounts: I have both an individual brokerage account and an individual 401k retirement account through Charles Schwab, and all major financial services firms offer these same types of accounts, although you may have to have a corporation to establish an individual 401k. I funnel $500 per month from my business checking account into the cash account associated with my individual brokerage account. This is money I’m saving for retirement, but I park it in cash until the end of the year, so that I can access it if I really need to, with no tax penalty. Then I move it (generally $6,000-$8,000 per year) to my individual 401k at the end of the year.

Managing money in uncertain times

I’m fortunate that things in my business are going well. And yet, I’m financially cautious right now because of all of the uncertainty in the world, the economy, and the language professions. Here’s how I’m handling it:

• Funneling more money into my business savings account. I always keep $10,000 in there, but lately I’ve been upping it, with a goal of having $15,000 in that account by the end of the year, partially just to have a better cushion, and partially to save up for the costs of publishing another book.
• Decreasing my discretionary spending. I’m fortunate in that I know how to live frugally; different strategies work for different people, but one thing that works for me is establishing “buy nothing” categories. I recently did this: decided to spend nothing (zero) on clothes or books until the end of the year. I have enough clothes, and I’m reading books I already own or can borrow from the library. It’s going well so far!
• Particularly limiting eating out. The cost of eating out where I live has gone up a lot since COVID, probably for good reasons (paying service workers more), but it’s just crazy-expensive. A few weeks ago, I left home without eating breakfast; a 12 ounce mocha, a scone, and tip set me back $14 at the cafe by my office. A recent burrito at the airport on a work trip: $19 plus tip. At these prices, even a few splurges per month could easily add up to $1,000 a year or more, so I’m trying to plan ahead and avoid impromptu meals out. On my most recent work trip, I picked up a pasta salad at Whole Foods to eat on the plane ($5).
• Watching what I spend on personal care. Again, another category that really adds up. I’m not a big-time salon person, but I go to a moderately priced hairdresser who I love ($55 plus tip), a pedicure salon that I love ($35 plus tip), and I spend a fair bit on skin care products because Colorado is incredibly dry. I’m not cutting these expenses out, but I’m stretching them: I recently found out that my hairdresser does free bang trims (yes, I still wear straight bangs, like an adult-size American Girl doll!). This allowed me to go two months between haircuts. I also admitted that plain old tubs of moisturizer ($20 for a two-pack at Costco) work exactly the same as the more expensive day moisturizer and night moisturizer that I sometimes buy from Lush.

I’m a naturally frugal person. What can I say, I was a longtime subscriber to The Tightwad Gazette back in the 90s! As soon as I sign up for a free trial subscription, I set a reminder to cancel it if I no longer want it. I’ve ordered Door Dash exactly once in the past three years, and then only because I had a gift card. But if you’re looking to really overhaul your finances, I’d recommend the book The Simple Path to Wealth, by J.L. Collins. It’s definitely simple: the author’s three principles are 1) Spend less than you earn, 2) Invest the surplus, 3) Avoid debt like the plague. Not super-complicated, but if you’re struggling with money in general, I like this book, and I also like the website of Mr. Money Mustache, who has excellent frugal-living tips.

I hope these tips are helpful! Just drop a comment if there’s anything you want to ask me or tell me!

To get our weekly posts directly in your inbox, sign up for the Training for Translators mailing list!