Last night, a great friend of mine came over for some wine. He also happens to be the videographer for my music videos and live performances. He’s a fantastic DOP (his freelance day job) but dreams of becoming a director and screenwriter for films, television shows, shorts, music videos…you know, the more creative stuff. 

He opened up to me about a current dilemma: he is getting a lot of paid work as a DOP but this requires sacrificing free time to write scripts and pitch them to production companies. He is currently in a sticky spot where he’s asking himself whether to decline a few DOP jobs to make this time. Of course, we weighed the pros and cons and I advised him to not burn bridges because when the work is less busy, he very well might need those contacts in quiet months to pay the rent and heat his flat thanks to Liz Truss priced energy bills. 

This conversation led to a new topic which is this; as freelancers, how do we know what we can afford when we get paid in these lump sums that come irregularly, with no guarantee of coming again? If/when we get paid again, how do we protect ourselves?

One of the most effective ways to manage your lumpy cash flow is to simulate being paid a regular paycheck from the lump sum. Think of it like this: Every dollar you earn will get portioned out. You’ll save a portion for income or self-employment taxes. You’ll use a portion for business expenses (overhead). And a portion will be used to pay yourself. You become your own boss essentially, your own business and you become responsible for setting that frequency yourself. 

For example, if you’re paid £2000 for a job in early October and then £1,500 for a job in late November don’t split it like that. Make £1,200 last for October in spending (rent, lifestyle etc) and that leaves you with £800 to last until your November job gets paid. Once November pays you, keep £500 of it and squirrel the other £1000 away for December. See what I mean? Consistently leads to calm. 

In order to best plan this, you also need to figure out how much exactly you need each month. I love the Halifax Budget Planner. You input all your spendings and it gives you a total sum for essential and discretionary spending (discretional you can tailor depending on the month). This will calculate the bare minimum you need to earn for that month. Say it’s £1,200 and you are making £3,000 in freelance earnings that month, try to live off £1,200-£1,400 and make that pay check last two months. 

Another thing every self-employed person needs to do is set aside 30 to 60 minutes each week to manage their finances. I suggest blocking out the same time every week as a recurring event. I’m asking for a lot, but it’s important to understand that when you work for yourself, you’re running a little business. The business requires attention, care, and focus. And when you give your business these things, you might be shocked at how much better you’ll feel about your finances. You may also find that you’re less stressed throughout the week because you know you’ve set aside time to deal with your finances.

If you’re running a freelance business, you should get into the habit of keeping your business and personal finances separate. Whenever you get paid as a freelancer, that money should go into your business checking account. Use your business account for business expenses. Do not pay for personal expenses from your business account. For personal expenses, you’ll pay yourself, which I’ll get to soon. When you file your taxes at the end of the year, it’s helpful to have your business expenses already separate from your personal expenses. This will save you time, money, and precious, precious sanity.

For example, I make money from my part time work as a copywriter (in copywriter mode now, hello!). This money I use to pay for my rent, groceries, dinner and coffee with friends etc. I also make money as a musician from brand partnerships, live gigs and Web3 opportunities. However, as I’m at the beginning of my career, I only spend this money on my music business. It goes on the cost of mixing and mastering songs, promotion for single releases and maybe a cheeky new Fender app purchase. It is a self-generated business and I make sure to keep these pay checks separate.

If possible, your personal emergency fund is your first priority because it’ll be your first line of defence in the event of a financial shock, or during a period where you have no payments coming in. Your fund should be saved in liquid assets (cash) that you can access quickly, without penalty. General financial wisdom says you should save three to 3-6 months of expenses in your emergency fund. If you can live off £1,400 a month therefore you should have a minimum of £4,200 in your savings for emergency cases. These are guidelines based on generalised risk. You can choose how much you want to save based on your personal comfort. For some, saving 3-6 months is plenty, while others might require 12 months of reserve to sleep soundly. 

Illustration by Veronchikchik

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