If you’re concerned about how to earn steady income as a freelancer, you’re not alone. According to Upwork’s 2016 “Freelancing in America” study, income stability is the biggest concern in the freelancer community. In fact, 46 percent of full-time freelancers are concerned about how to earn a steady income. It’s also the biggest perceived roadblock holding back part-time freelancers from making the leap to full-time.
I was worried, too, when I started freelancing. But over the course of my first few years, I learned some practices that paved the way for stable income. With financial planning, a salary-based approach and a willingness to raise your rates, you can benefit from the perks of being a freelancer, too, without worrying about paying the rent.
1. Give Yourself a Runway
Building a solid nest egg or emergency fund is one of the surest ways to prepare for a steady income. Although it may seem counter intuitive, saving three–six months of income in advance means you can work toward long-term income stability rather than meeting short-term needs as a freelancer.
I saved six months of after-tax income before I made the jump to freelancing full-time. I didn’t have to worry about a financial catastrophe, and instead invested my energy in building strong relationships with clients and mastering my craft. This approach helped me build a sustainable business model. Without it, I would have burned out trying to pay the rent with cheap projects and short-term deals that didn’t serve my long term goals. By building a nest egg and steadily growing my client load, I set a solid foundation; by my second year, I had doubled my income.
2. Create a Salary
I always recommend that freelancers pay themselves a salary based on their income. Even if you’re making $10,000 or $20,000 a year post-taxes, you can spread that out evenly, rather than suffer from a “boom or bust” financial situation. Here’s how: Take the expected annual business income based on my incoming projects and subtract the expected taxes. I’m more conservative than other freelancers, and I set aside 35 percent for taxes and unexpected fees. This is your post-tax personal income, which (for me) is 65 percent of my business income. Then, I divide that amount by 52, and that’s my weekly salary.
Every week, I cut myself a check from my business account. If I have a busier week, I don’t pay myself more. That extra revenue covers me for slow months like August, as well as holidays, vacation days and sick time. Before each new year, I look at my numbers from the prior year, and I adjust that annual income as needed.
3. Raise Your Rates Annually
Most employers increase salaries to match the inflation rate. As your own employer, you need to be doing the same thing. In addition to raising rates for inflation, I encourage freelancers to reevaluate their rates every six months. A mentor once told me that if no one is turning me down because I’m too expensive, my rates aren’t high enough. It’s the most valuable piece of advice I’ve gotten as a freelancer.
Rather than raise all my rates at once, I increase them for new clients before bringing up the topic during a work anniversary with current clients. This “staged” approach ensures that I test the viability of rates before risking a big revenue loss and dip in income. In my own business, I’ve found that people value my effort more when I work at a higher rate, and the extra income means I can produce higher-quality work.
These three ideas can help you think differently about how to earn steady income. Instead of taking a risky chance as a freelancer, you can plan in advance, give yourself a salary and raise your rates to ensure financial solvency. As this positive cycle continues, you’ll actually add to your savings and build your income. Before you know it, like me, you may be making more than at your old nine-to-five job.