So far in the 15 Days to Running a Successful Freelance Business series, I’ve talked about the mechanics of setting up and running your business, but in Part 5, it’s time to take a step back. I know you are reading this thinking ‘I can’t wait to get started’. You may spend most of your time at work dreaming about it, but there is usually one question that is holding you back.
“How do I save enough money to quit my job?”
I’ve written about this before, which you can find here, but today I want to go into more detail.
Create a budget
Go through your last 3 months worth of bank statements and look at what you have been spending your hard earned money on.
If you only bank online, you should print each month’s statement off. Otherwise, grab your paper statements, a cup of coffee (in fact, let’s be honest here, just put a pot on the stove for this) and go through every last item in your statements.
Once you have them in front of you, organize them under the following headings:
Fixed Costs – which will be all your utility bills, rental/mortgage costs, insurances, and any fixed consumer debt costs, like car repayments or credit card minimum payments.
Variable Costs – all of your groceries, fuel, clothes/haircuts/entertainment/eating out – basically all of your bills that change each month depending on what you have on or how you’ve been living.
Savings – everything that you are currently putting towards long term savings – so this might be a Christmas savings account, your pension (if it doesn’t come direct off your salary), any investments that you make – no matter how small.
Income – your salary, any interest payments you’re making, any benefits that you earn or income from investments such as stocks or property.
So now you know exactly how much is coming in versus how much is going out. You might even have a cute spreadsheet that looks like this:
And if you’d like a cute spreadsheet that looks like this, just click here to download the template.
Now comes the fun part.
Go through every single expenditure item and ask yourself – can I cut this item completely or pay less for it?
Be ruthless – preferably without making your life totally miserable – and always keep your end goal in mind. You are doing this for a freelance life remember.
If you haven’t shopped around for utilities for a while, you might be surprised at how much you can save just by making a few calls.
Can you cook more at home and eat out less?
Can you change your shopping habits? Maybe shop at a lower cost store (we swapped Tesco for Aldi) or, if that’s not practical where you live, can you downgrade your brands? If you really don’t want to switch from premium to cheapest, just making the move from premium to the next priced brand will make a difference.
Save on fuel by figuring out which garage near you or on your route to work is cheapest. If they’re a 20 mile round trip in the opposite direction though, it might not be worth the saving unless it is much cheaper than anyone else. Drive at 60 – 65 miles per hour max, don’t use the car for short trips and take the bus where you can.
Do you really need someone to clean your windows once a month or could you do it yourself?
I always thought that I was pretty good with our finances, but after going through our monthly statements, switching a few suppliers and changing our shopping habits, I managed to save us around $270 per month from our bills just by tightening up on our outgoings. That’s over $3,000 per year.
Create a Savings Habit
Cutting costs is one part of the equation. You will also need to either start or boost your savings.
If you’re saving to quit your job, ideally, you should aim for having a minimum of 6 months expenses put aside before you hand in that resignation letter. That is, 6 times the amount that you have just identified as your essential costs when you went through the above exercise.
The idea is not to have 6 months of your current salary put aside, but to have enough money to cover your essential bills for the first 6 months of your freelance business life.
Why 6 months?
Well, you can save more if you’d prefer, but as a bare minimum, you are likely to spend more of your first 6 months in business trying to drum up clients and market yourself than earning money. You might, of course, be lucky and have clients lining up from day one, but it’s easier to save yourself a whole lot of stress and have that money in the bank from the start.
If you struggle to find any money to put into savings, the simple trick that you’ve no doubt heard is to pay yourself first. Make sure that you set up a direct debit from your current account straight into your savings account on the day that you get paid – or as close to it as possible – each month. Then, that money is gone and you won’t have a chance to fritter it away on Starbucks.
How much should I save?
Well, you will have an idea of how much 6 months expenses is, and you should have a clear idea of how much you can afford to put aside each month. In an ideal world, you should aim to save 10% of your salary each month, but if that’s not going to be possible, try to save as much as you can afford after making sure the essentials are covered.
Of course, you might decide that you want to have left your job by a certain time – maybe 9 months from now. If that’s the case, figure out how much money you need to save each month for the next 9 months that will give you enough living expenses to see you through your first 6 months of self-employment.
Pay off your debt
I deliberately left this after starting a savings habit, because personally, I find it easier to get motivated to pay off debt if I’m also saving at the same time. This is is entirely up to you though.
If you can afford to save 10% of your salary each month, and have debt too, it might be better to pay 5% towards your debt and 5% towards your nest egg. It really depends on the numbers you’re facing.
If you have credit cards on high interest rates, shop around to try to find a 0% card if possible. That means your payments will be paying off as much of your debt as possible rather than just clearing off the interest each month.
Put your debt in order of priority – if you have a credit card, a store card and car repayments, for example, figure out which is costing you the most. Concentrate on paying that off first, while making the minimum repayments on the others. Then once that’s clear, shift to the next most expensive debt and so on…
I haven’t included your mortgage here but of course, if you decide that you want to pay it off before going freelance, you could add this into your debt priority payments. Even if you can’t clear the balance completely, it might be worth making overpayments (if your bank allows it) to reduce the amount you owe the bank before you quit your job.
Diversify your income
Is it possible to start your side hustle while you’re still working? Can you start to offer your freelance services part-time? This has the duel benefit of giving you small amounts of earnings, while at the same time helping you to build a client base. As you’re already earning your salary, you can use any money earned from your side hustle to pay off more of your debt or to boost your savings.
Get some cheerleaders
Try to surround yourself with people who are supportive of what you are aiming to do. We all have friends who like us to go out and celebrate with them all the time – and of course, I’m not suggesting that you become a hermit – but those friends who are constantly planning expensive nights out and making you feel bad about not joining them, perhaps don’t have your best interests at heart. After all, if they’re real friends, they’ll want you to live your dream life, won’t they?
OK, so you’ve trimmed your budget, kicked off your savings habit, are paying down your debt AND you might even have a little bit of extra income coming in – all with your best cheerleaders supporting you all the way. You are getting closer to your freelance life now. Exciting isn’t it? Remember the end goal when you are tempted by that pair of shoes or you fancy blowing the budget to help you to stay focused. You can always reward yourself when your first freelance gig pays up.
15 Places to Make Savings
Stuck for ideas of how to save money? Here are a few that I’ve tried and tested myself and that work for the family Apricot Ginger.
Go to see movies outside peak times – and take your own snacks with you. Popcorn from the supermarket is far cheaper than paying cinema prices
Invite friends around for dinner instead of going out for a meal – and if you really want to save, you could even invite them around for a pot luck supper where everyone brings their own dish
Join a car club – I did this and it meant we could sell our second car. Some extra money in the bank PLUS money saved on road tax and insurance. And I only use the car when I really need it
Sell stuff you don’t need – get on Gumtree or ebay to sell what you don’t need or want anymore. Gumtree is great for local sales if you’ve bulky items that you don’t want to or can’t post, while ebay is good for pretty much anything
Get stuff on Freecycle – sign up to your local Freecycle site and get things that you need for free. One man’s junk is another man’s treasure and all that. You’ll be surprised what some people are getting rid of
Use charity shops – if you need to restock your wardrobe – or the kids wardrobe – check out your local charity shop. Even better, head to a charity shop in a wealthy part of town – I know someone who picked up a genuine Mulberry handbag for $45 in one!
Swap with friends – maybe you need a babysitter while your neighbour could do with a catsitter in a few weeks time. Instead of both of you paying for these services, you could do a trade
Host a ‘swishing’ party – if you fancy a wardrobe revamp and have lots of quality items of your own that you no longer wear, you could invite your friends round for a swishing party – where they bring their best clothes that they don’t want anymore – and you swap. Invite a crowd of friends, ask them to bring some wine along too, and hey presto, instant party with your girlfriends while you choose new outfits together – and they tell you what suits you too!
Meal plan – decide what you’re going to cook for the week, fortnight or even month if you’re really organized – and never have to rely on a last minute take-away or expensive ready meal again
Shop with a list – if you’re meal planning, this comes as second nature, but don’t go to the supermarket without a list. Make sure you know what you’re going for and only buy what’s on the list
Don’t shop when you’re hungry – you’ll buy stuff you really want to eat there and then
Don’t shop with the kids – they either put things in the basket when you’re not looking or they persuade you that they will eat fruit if you buy that expensive tropical stuff that is 5 times the cost of your normal fruit and veg
Shop in season and use local shops – small shops often have the reputation of being more expensive than supermarkets, but my local fruit and veg shop can often be much cheaper than the supermarket, especially if I’m buying produce that’s in season
Cook from scratch and freeze for later – cooking from scratch is far cheaper and healthier than buying ready meals, which are often expensive and usually packed full of salt, sugar and additives
Train outdoors – quit your gym membership and go for a run, get out on your bike or, if you’re really brave, go wild swimming!