There are many upsides to freelancing: You can set your own hours, have greater flexibility, and take on as much work as you like. The downfall, however, is that you might often take on jobs you don’t like just to pay the bills.
That’s why it’s necessary to have a secret weapon: A ‘walk-away’ fund.
“As a freelance accountant for over 10 years, building a ‘walk-away’ fund has been essential to gaining more control over the work I take on,” said Nischay Rawal, certified public accountant and founder of NR Tax & Consulting.
The key, he noted, involves budgeting and consistently setting aside a portion of your income each month, even if it’s a small amount at first.
Read below for more expert tips that allow you to say ‘no’ to jobs you don’t want.
Also see apps freelancers should use to help them earn more every month.
Cut Down on Costs
“Personally, I analyze my expenses each month to find areas where I’m overspending, like dining out or entertainment,” Rawal said. “Cutting these costs by even 30-50% allowed me to start saving an extra $500 per month.”
Once he had 3-6 months of emergency expenses saved, he began setting aside 15% of each payment in a separate “walk-away” fund.
“Now when an undesirable project comes up, I can confidently say ‘no’ knowing I have enough set aside to cover essential costs.”
The amount you can save will vary depending on your income and expenses. It’s important to start with whatever you can and increase it over time.
“As a freelancer, your independence depends on building financial security,” Rawal added. “Having savings means never feeling stuck in a job that isn’t the right fit or taking on more work than you can handle.”
It’s crucial to build the habit of paying yourself first before spending on nonessential costs.
“With discipline, you can gain more control over your career and the freedom to choose work you genuinely want.”
Make Budgeting a Priority
Freelancers can use the well-known 50-30-20 budgeting rule to create a walk-away fund.
“Half of the income should be spent on essentials, 20% should be saved and 30% allocated for discretionary spending,” said Ryan Reed, chief financial officer at Code Signing Store.
However, you should make sure to redirect a portion of the discretionary budget directly into the walk-away fund.
Reed said, “This not only ensures essential savings but accelerates the growth of the fund by tapping into money that would typically go to nonessentials.”
Freelancers also should frequently review their business and personal budgets to ensure they are on track with their financial goals.
“When it comes to running my business, I like to use zero-based accounting, which is month-after-month assessing all expenses and justifying each one,” said R.J. Weiss, certified financial planner and CEO of The Ways to Wealth. “This helps to identify unnecessary spending and ensures that every dollar has a purpose.”
Create a Buffer with Invoice Factoring
Invoice factoring is often overlooked by freelancers. “Freelancers who sell outstanding invoices to factoring companies will have access to instant cash flow,” said Reed.
This practice helps reduce the time it takes before a client makes payment, thereby providing quick cash that can be partly directed toward their walk-away funds.
“Also, such a move protects against late-payers affecting financial steadiness.”
Client Selection and Retainer Agreements
Making smart choices when selecting customers plays an essential role in financial planning.
Reed suggested giving priority to customers who have long-term projects or retainer contracts since they provide regular streams of income.
“By doing so, this stability makes it easier for anyone to allocate a consistent amount to his/her walk-away fund.”
Additionally, negotiating retainers or monthly payments guarantees consistent inflow of money needed while establishing reserves.
Pick Up the Right Freelancing Books
Sometimes the right reading material can help. Weiss highly recommended reading “Profit First” by Mike Michalowicz.
“This book was a game changer for me and other freelancers,” Weiss said, “and I recommend it to you as it teaches you how to allocate your income effectively.
“The big shift is that instead of assuming a $5,000 contract means $5,000 in your bank account, ‘Profit First’ breaks down how much you can use and when.”
This clarity helps you make informed decisions about which jobs to accept or decline.
Focus On Adding Higher-Quality Clients
It’s important for freelancers to always work toward attracting higher-quality clients.
“One of my mentors advised that doing one small daily task to reach your ideal client can make a significant long-term difference,” Weiss said. “It’s been so true in my experience.”
Stay on Top of Tax Obligations
Experts note that it’s important for freelancers to stay on top of their tax obligations. Weiss recommended reading “Profit First” to help with this.
He added, “Not keeping up with taxes and trying to catch up later can lead to financial stress and penalties and [force you to] take on work you don’t want to.”
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Source: How Freelancers Can Build a ‘Walk-Away’ Fund That Lets Them Say ‘No’ to Jobs They Don’t
