● By Mel Sim
Because you never know when the next pay cheque is…
Big kudos to you if you’ve decided to take that big step to start your own thing. It’s a bold move but definitely doable – and if you are good and hardworking, it can be rewarding as well. But until you’ve established your reputation with clients always coming back to you for your services, being freelance can be a scary thing.
Trust me, I know all about it having been freelance for more than a decade! The scariest thing? Moolah. To be more precise, making enough moolah to support yourself.
I’m not just talking about your monthly expenses; I’m talking long term. Like when you decide to retire and enjoy life as you should at old age. The difference between being freelance and someone who works 9-to-5 in this moolah aspect? Number one, we don’t have a fixed income we can depend on monthly. Which makes for regular savings a little bit tricky, especially when you have bills to pay every month. Number two, there’s no EPF contribution from your company for freelancers (but more on this later). So there’s no extra forced savings to ensure we have a nice pot of money waiting for us when we retire.
How does this become a huge problem? If you are freelancing and am not careful with your budgeting, you end up not saving at all. Which can be a big mess when you are old and broke with no money to pay for anything! That’s stuff money nightmares are made out of.
Story time: When I first started as a freelancer, I made the mistake of not making sure I have enough money in my savings to tie me over for at least six months. Needless to say, it was a scary time where I wasn’t sure if I had any money to pay for my bills. Thankfully, I was living at home so there’s no rent or food money to think about.
But still, one cannot live this way constantly worrying about money! So I did what most freelancers in my situation would do: Take all jobs, regardless of how much they paid. Because money is money, right? Which means working doubly hard, even more hard than when I had a regular job. Thankfully, I soon had regular clients and contract work which equals to a regular income each month.
Doesn’t mean that I am in the safe zone when it comes to money. Which is why the minute – no, the second – I started making a regular income by being a freelancer, I made sure I started saving and making my money work hard for my future. One of the first things I did was start my own “EPF”, ie retirement savings. I did the whole save some money each month but I also signed up for investment-linked insurance plans where each month, I had to put aside some money into these plans. Not only do I get covered insurance wise (no such thing as company health insurance when you are freelance), it’s like I am contributing to my private “EPF” account that can only be withdrawn when I retire.
Other finance smarts for freelancers? Here are some to think about.
#1 Give yourself a salary
Remember, freelancing is a business and there is one employee in your business: You. To really keep track of your money in money out, think of paying yourself a salary (be realistic about the figure!). This will make budgeting easier and whatever extra you earn goes straight into your savings or investment. Also, if it seems that you can’t pay yourself the salary then perhaps you need to consider if freelancing is going the right way for you.
#2 Yes, You Can Still Have EPF
Yups, you can voluntarily contribute to EPF and it is for a good reason: Your retirement fund. Your minimum monthly payment is RM50 for every transaction and a maximum of RM60,000 yearly.
Start with your expenses. Log in what you need to pay each month – rent or mortgage, utilities, loans, groceries, internet. What you need to do is earn more than this amount to ensure that your freelancing gig is the right thing to do. Then have a second budget that includes things you want to do – dinners out, trips, a new gadget. This number here will let you know how much you need to earn to have the kind of lifestyle you want.
#4 Save first, then spend
OK, it’s nice to treat yourself to an expensive gadget once in a while but it doesn’t mean that each time you score a big pay cheque, you splurge it. It would do much better to save that nice big fat cheque instead. And when you have a healthy emergency fund that can cover you for a year should you not have regular clients each month, sure go ahead and shop. After all, you earned it!
Photo by Ali Yahya on Unsplash
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