I went to Brixton yesterday afternoon and sat in the sunshine at a Latino restaurant with my cousin sipping a jug of Mai Tais. We both realised, while semi drunk and halfway through the jug, that we hadn’t ordered food out in about two weeks. As young working women in their early to mid 20s, sure, we don’t expect to wine and dine on a daily basis but a bowl of ramen or date night dinner once or twice a week shouldn’t break the bank, especially when living and working in an exciting capital city.
This naturally led to a conversation about inflation. How ridiculous it is, how a glass of orange at a central London café costs £4, how we can barely afford to pay bills and council tax. We are also both freelancers which led me to writing this article on how, as freelancers, we are coping with inflation.
A simple rule of thumb makes it easy to understand the powerful effects of inflation over time. Take 72 and divide it by the annual inflation rate, which is currently 4%. The resulting number tells you how many years it takes to cut your purchasing power in half. For instance, given the current inflation rate, in eighteen years (72/4) your current revenues will only be worth half as much.
Given rising inflation, it’s important for freelancers to think about how to increase their revenues to keep pace. Those will consistent, long-term clients are often hesitant to raise prices on these clients due to status quo bias, which is our preference to keep things as they are. Unfortunately, in a period of rising inflation, that can create a growing disconnect between what they charge clients and the revenue they need to maintain their lifestyle. If the freelancer is feeling the pinch of rising prices, they should raise their own prices to keep pace, even on their long-term clients. This will help them avoid a much larger price increase in the future, which could feel unfair to clients.
Internal costs are also another factor to consider. If your work requires you to buy materials to deliver a product, the raise in price of your costs will mean that your net income will decrease if you don’t adjust it accordingly.
Different freelancers are impacted differently by inflation. Given these disparities, it’s important for freelancers to consider their own inflation risk. They should look at pricing trends for their largest expenses, whether it’s lumber, gas or cleaning supplies. Based on this personalised approach to inflation, they should then develop a strategy for dealing with these increased costs.
Especially at a time when inflation is so hard to ignore, it’s literally shoved into everyone’s face in any industry. Given our limited safety net, freelancers are especially vulnerable to the money illusion, which is why we should take steps to deal with inflation before it’s too late.