Three steps to avoiding the freelancing trap

Freelancing? Not rich yet? Want to know why?

One of the traps of freelancing – really it’s going into small business by another name – is “the books”. No, this isn’t a lesson on book-keeping or reading balance sheets or even a master class on the dreaded BAS [Business Activity Statement], but instead a small piece on a common freelancing trap.

We know we need to make a profit. That’s what pays the rent or mortgage, buys food, takes care of insurance, rates, electricity bills etc. And of course profit is equivalent to sales minus costs. And therein lies the trap.

We all know how much we “sell”, that’s the easy bit. Costs are a different thing again. Who truly knows what their monthly costs are? Go on – be honest.

Step 1 – Catalog Your Expenses

Excerpt from one of the sheets of my spreadsheet

The only way to find out is to get a receipt for everything you buy and catalogue it. Even better, to get a more accurate average, do it for three months. And I do mean everything – as well as the obvious mortgage/rent, fuel, weekly grocery shop, include all those little things you normally wouldn’t consider such as the daily and weekend newspaper, your lunch from the sandwich bar, that Friday night beer at the pub, entry fee to the zoo with the kids.

Everything.

Don’t cheat at this either. Even throw your credit card payments in there for example and any money you set aside for holidays etc. These should also be entered in step 2 (below) that is later creating a meaningful budget from these numbers.

I use a purpose built Excel spreadsheet I made to catalogue this stuff, work out budgets, variances and summarise them all into monthly running totals. If you want a copy, let me know at david@auscamonline.com.

At the end of the first month you’ll be very surprised at how much you are spending. This is a good thing as it will allow you to create a realistic budget and find ways of cutting costs. Which means of course that the profit gets bigger! And that is the end game.

2 – Cut Unnecessary Costs

Cutting costs can be as simple as making a sandwich rather than buying one, using the bus or train on occasion rather than taking the car to appointments, making sure all unnecessary electrical appliances are off and not just on standby, making your own home brew (which is bloody good fun and a huge cost saver over packaged beer), washing the dog yourself as against a weekly hydrobath and so on.

3 – The Reading List

There a number of very good books I have read recently on these sorts of topics I can heartily recommend. I bought them through the Kindle bookshop via Amazon, but they are available in paperback too (although I do recommend the Kindle option!) [Affiliate Links]

The eagle-eyed among you will notice a common thread here (mostly). All except Alan Sugar are members of the Dragon’s Den team from the BBC TV show. They are all self-made multi-millionaires (as is Alan Sugar) and tell it as it is.

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This is a guest post by David Hague, editor of AusCam Online. You can follow David on Twitter  – he’s @vbthedog

2 thoughts on “Three steps to avoiding the freelancing trap”

  1. Good advice. I always say there are two ways of making more money – taking in more payments, or cutting costs. I think people forget the second option there. Keeping an eye on new technology can be useful with this; eg I pay a lot less for my communications now with a Naked DSL service and VoIP phone than I did a couple of years ago with a regular landline.

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