In my expanded series on managing irregular income as a freelancer I covered budgets in depth last week. This week we move on to step two, salary negotiation.
In my first post on this I covered the issue in a rather flippant manner, “Having worked out the budget for personal and business expenses you are ready to move on to the second part, salary negotiation. This part is easy. Your total budget number is your target salary. So as the employee you go to your boss (you) and ask for this. Your boss (you) then says yes. Celebrate with a cocktail.”
In truth the issue is more complex. Let’s assume for the sake of argument that you worked through your budget and arrived at a number of $4,000 a month. This does not mean you look to make $4k a month from your freelance contracts. It does mean that you need to make, on average, at least $4k a month. The whole point of this system is to even out the irregularity of the work cycle. Your standard of living does not need to fluctuate in the same cyclical manner as your work income.
Chances are if your target budget is $4k, your target monthly income will need to be closer to 6K. I will cover emergency funds next week, but this all ties into that topic. You want your business to be able to continue paying you even when you do not receive payment from your clients for weeks or months at a stretch. As such you will need to shoot for a monthly income that takes into account not only current expenses, but rising future expenses and/or a decline in future income.
Further, it is critical that your business maintain a cash reserve thus making it possible to pay assistants, subcontractors, etc. without concern for incoming checks. Targeting your business income high enough to meet all operating costs, that includes your personal salary and covers subcontractors, creates a positive atmosphere where assistants and subcontractors will want to keep working with you because they know you can be trusted to pay them on time.
This gets down to the question of how to pick projects. How you evaluate projects is a very personal decision, I have found myself refining and changing those criteria regularly as I continually check in with myself about wether or not the choice I am making is right for me. Some people will only take projects that are deeply satisfying on a creative level. Others are fine with anything so long as the people they work with are engaging. Still others will take anything that pays above a certain minimum. There are many variations and permutations of these options and finding the right balance is up to you.
One major criteria that you will be measuring all this against is your budget. If you need to make $4-6K a month you will need to find a balance of types of projects that will bring in that income. If you find that the types of projects you are willing to work on will not bring you the income you desire, then you may need to go back to step one and reevaluate your spending patterns or reconsider the standards you use to evaluate potential projects.
The balance between your budget and your target salary must be made carefully. Budgeting for a $6k monthly income when you only make 3k will turn into a disaster in short order with rising debt levels and increasing stress. Instead one must look at current income levels and future projections thereof to determine target income. From there balancing the budget with the income is rather simple.
The key in this step is honesty. While it might have felt good to design a budget with a monthly income of 6K, if your realistic monthly earnings are closer to 3K you need to bring that into consideration. This is also the part of the process where you review your budget for possible cuts in spending. Since we based our budget on actual spending habits we now take the time to look at those habits to see which might be changed or massaged in order to bring the budget number in line with the income.
The balance between income and spending is of critical importance towards creating a smooth economic life as a freelancer. Being clear and honest with yourself will allow you set up a system that has both a strong foundation and is robust enough to weather the many economic vicissitudes that come your way.
