The Money Book for Freelancers, Part-Timers, and the Self-Employed

CHAPTER 1  

CRACKING THE WHIP  

Denise remembers leaving her job for life as a full-time freelancer. Assignments had been increasing. The future-project outlook was rosy. Everything had changed. At least, that's what she thought.  

"A giddy, mind-numbing joy overtook me when I decided to work on my own. The sense of independence, the excitement, the seemingly unlimited potential! The only thing that could stop me was, well, me. I had just gotten a very small advance for a book. By the way I reacted, you'd have thought I'd been named Bill Gates's sole heir. Visions of the lifestyle I dreamed of beckoned me like a siren song. I did what any shortsighted, overcaffeinated twentysomething would do: I quit my job. Doing this took some guts but also an incredible amount of stupidity.  

"At first it was heaven. I stayed warm at home while my roommate headed out into the rain for the morning commute. I didn't have to put on work clothes. I made my own schedule. And more than anything, I was actually being paid—though not too much—to work on a book. I was certain I could line up some more work when I needed to. I thought things would take care of themselves. So I plodded along, made my deadlines. My friends were congratulatory and supportive, and life was good.  

"Until it wasn't.  

"I did line up those freelance articles, but for some crazy reason the editing schedule at the magazines was not designed to coincide with the dates my bills were due. Go figure. And when it was time for me to start paying for my own health benefits (since I'd said good-bye to those once I quit my job)...ouch. I looked and looked for decent coverage at a reasonable price. Even the cost of catastrophic health insurance—the 'If your appendix bursts, we'll take it out' plan—was way outside my budget. So I did what a lot of people in that situation would do: I went without.  
"Bad went to worse. This check came late, that assignment didn't come through, and soon I was borrowing money. The evil debt monster was creeping up behind me. I was getting work, but the flow of money from day to day was not supporting me in a manner that allowed for even a modest measure of sanity.  

"In short, I wasn't prepared. My lack of preparation caused me to risk not only my financial health but also the career I so desperately wanted. Those enticing visions of an idealized lifestyle that had caused me to go down this path were gone. I had to figure out a way to get them back. But I had to do it right."  

THE MYTHOS OF THE INDEPENDENT WORKFORCE  
Denise let her dream distract her from her financial reality. Are we saying that dreams can't be achieved? Absolutely not. Quite the opposite. What we are saying is that dreams (and if "dreams" sounds too touchy-feely for you, feel free to substitute "goals," "plans," "ideals"...) can only be achieved if they grow out of your reality. In other words, you need to build a bridge from where you are to that dream place where you want to be. Denise ignored the realities of her present situation (limited funding, no financial cushion, no real plan), and it wreaked havoc with the ideals she had in mind for herself (working from home, earning a living from her writing, being financially solvent). Rather than working toward a concrete dream, her poor planning was making her the main character in an oft-perpetuated and usually self-fulfilling myth: that freelancers must all suffer financially.  

Ever since Zeus launched his first thunderbolt and Icarus got that nasty sunburn, myths, stereotypes, labels, pigeonholes—whatever you choose to call them—have been created and perpetuated to communicate stories about groups and cultures. Unfortunately, many of the prevailing ideas about freelancers and independent workers are negative. And the myths are so powerful that we can end up believing them ourselves, whether we realize it or not.  

"Freelance" is not a word that usually conjures up images of hard work, security, and financial success. People in the arts get a particularly bad rap. "The struggling artist"... it's almost as though being prosperous conflicts with the very idea of pursuing what you most dearly desire to do. In fact, the freelance life is often viewed by those in the nine-to-five world as—let's be honest—kinda slack and self-indulgent. Any independent worker knows that this is far from true. But this doesn't stop friends in offices from calling in the middle of the day to ask, innocently, "What are you doing?"  

Who, me? Oh, I'm just lying here, stretched out on the old sofa, one finger up my nose, the other hand in a bag of chips, watching a couple of aesthetically challenged midlifers redoing their home and arguing over what a Tuscan kitchen is....  

What do you think we're doing? We're working, you nit!  

And then there are independent workers who, though they may labor away in offices, are struggling to create a secure financial lifestyle in a larger society that often believes that the only key to security and prosperity is a traditional job.  

For a growing number of us, that's either not what we want or simply not an option.  

Remember: how the outside world sees you and how you see yourself are two different things. Give in to the "creative people aren't good with money" mind-set, and guess what? You can kiss your sweet financial patootie and any chance of a comfy retirement good-bye. Accept the idea that the self-employed are destined to work like rat dogs with no financial security until their stubby little fingers can't qwerty anymore, and you can go ahead and start collecting cats now.  

Contrary to popular belief, anyone who is supporting herself as a freelance or self-employed anything is working. A lot. Not only that, but independent workers must toil harder than salaried employees at managing their money, because no one else is doing it for them. While it's frustrating to be misunderstood by those who think you're leading a bonbons-for-breakfast kind of life, what's more important-especially to your money-management health-is how you view yourself. It's time for you to see yourself succeeding and achieving; otherwise, the money that comes into your life will slip away.  

WE THE PEOPLE...A MANIFESTO FOR THE REST OF US
As you move through your day, take stock of the different people you encounter: secretaries, construction workers, waitstaff, realtors, landscapers...and remind yourself that they, too, may be working from client to client. They, too, are wondering how to deal with the rising cost of health care. They, too, are struggling to save for retirement without the benefit of a 401(k). Look at them, and feel the solidarity rising up within you.  

Look at them and know: you are not alone.  

Make no mistake: the independent worker is the future of the American workforce. Our numbers are growing, and in tough economic times, they increase a lot-and do so very quickly.  

Some people choose to be out on their own. But lots of folks reading this book don't want to be in a work situation where there is no health care, no retirement, no paid vacation. But hey-they are anyway. Nearly 2.6 million people lost their jobs in 2008 alone, and the nation racked up another 3.4 million job losses between January and October of 2009. Many of those workers will never reenter the traditional workforce, instead joining the ranks of independent workers. A design firm lays off employees, and suddenly those ex-staff are competing with you for freelance assignments. A plant closes, and suddenly folks show up asking for shifts at your restaurant. A housing crisis hits, and there are just as many carpenters but a pitiful amount of new construction. What then?  

Having your financial house in order brings peace of mind. It also puts you in a better position to survive and thrive, no matter what the economic climate.  

After all, anyone who knows how to run a business, generate income, manage money, interact with customers and clients-all on his or her own-is going to be a lot better off and feel more secure than someone who has "job security." In reality, those with job security are subject to the whims of moody bosses and scheming coworkers and are forever dreading that they will one day hear two words: "You're fired." (Or these nine: "I'm sorry, but we have to lay you off.")  

Language is powerful stuff. As you read this book, you'll notice that we often lump all our target readers under the umbrella term "independent worker." Here's why: we want you to start seeing yourself as part of a larger community that is rapidly becoming a political force.   We are the independent workforce. We are prosperous. We are freelancers, permalancers, temps, consultants, contractors, self-employed, self-reliable, self-starters, and we are here to stay.  

A LEXICON OF INDEPENDENT WORKERS  
People who work for themselves face similar challenges but are often described differently. Here, we attempt to confuse you all the more.  

Consultant: Often a once gainfully employed individual who either got fed up and quit or was shown the door by an ungrateful employer. Fleet of foot and nimble minded, consultants have rebranded themselves as saviors to the soulless creatures who gave them the boot. Their revenge? This time, they're charging by the hour.  

Day laborers: Workers who typically hire themselves out for a single day for cash pay. The nation would grind to a halt if these overworked and underappreciated workers walked off the job.  

Independent contractor, freelancer: Often used interchangeably. Workers who call themselves freelancers are often people in creative fields: designers, bloggers, producers, animators, software developers, etc. They find their own gigs, do their own invoicing, and are responsible for...everything. Little-known fact: the term "freelance" originated in medieval times and referred to mercenary knights who were free to point their lance at anyone.  

Part-timer: A person who works less than a full, forty-hour work week-sometimes by choice-so he or she can fulfill other obligations, such as child rearing, schoolwork, or the demands of another job.  

Permalancer: A full-time employee who typically works at the same job for an extended period of time-even years-without the usual benefits. On the books, he or she is listed as an "independent contractor" and may even be "laid off" every three months, then rehired for a different "project." This way, the employer can justify not paying for health care or retirement. Some permies prefer their work situations; others are silently praying for the night they meet their boss in a dark alley.  

Self-employed: Though the term can apply broadly to everyone here, speakers who use the term envision an individual who runs a small business and may even have employees. The overpriced dry cleaner on your corner qualifies, as do your doctor, lawyer, architect, and sweet aunt Tookie who runs a B and B.  

Temp: Here today, gone tomorrow, the temporary worker signs up with an agency that sends him or her on missions of corporate importance. The worker never quite fits in or catches on because work at any one place is all too brief. In the end, the agency carves up the pay like a Thanksgiving turkey and feasts upon the meatiest parts. (Some corporations hire temps directly so they can skip the middlemen and fleece the worker themselves.)  

THE REAL PROBLEM  
The reasons most independent workers have problems with money boil down to two significant things: timing and planning.  

By "timing" we mean how frequently you get paid. Full-time employees get paid every week or every two weeks. By contrast, independent workers collect their pay when the project is done, when they book a new client, or when they sell goods or services (once any overhead is paid off, of course). In other words, they have variable or irregular income.  

By "planning" we mean the complete, systematic organization of one's financial life. For a lot of full-time employees, organization is simply a matter of filling out the forms in their benefits packet. In one fell swoop, they sign up for health care and a 401(k). For the independent worker, things are not so clear-cut. They must do all this for themselves, and often they have no clue where to start. Without planning, you cannot have benefits. Without planning, you won't have insurance, savings, etc. Good planning is essential to your survival as an independent worker.  

We can hear you complaining already. Why make this so complicated? Just teach me about budgeting. All I have to do is make a budget and stick to it. Well, fine. Budgeting is awfully hard when you don't know exactly what you're going to be making every month. Or you might be thinking to yourself, Stop the mumbo jumbo. Just show me how I can save more money. OK, but saving is even harder when things like health care and taxes sneak up on you.  

If your income is variable, you may have found yourself in some of these situations. Heck, we know we have.  
• You spend the first three months of the year working on an important, well-funded project. You send in the invoice, sure that you will be paid in time to pay your April rent. The invoice gets lost, and the check arrives in late May. You're hosed.  
• Tax time comes around and-oops-you forgot to pay those quarterly taxes. Now the total is far beyond what you can afford, and the IRS payment goes on the credit card.  
• You chose to pay your health care quarterly, rather than monthly, because that means you only have to look at the bill four times a year instead of twelve. Out of sight...out of mind. When the statement shows up, you're shocked by an amount that's three times as much as the monthly number for which you've budgeted.  
• Work has been pretty steady lately, and you have no reason to think things will dry up, so you decide to splurge on a new computer. Instead of saving for it, you put it on your credit card, intending to pay it off in two months. As luck would have it, your shifts get cut back. Six months later, the computer-along with several happy-hour outings and an occasional rent payment-is still on the card.  

None of this sounds new, does it? Well, take heart. Know that your current situation is fixable if you get a handle on timing and planning.  

Understand right now that you're not having these problems because you're not good at what you do, or because there aren't enough jobs, or because you don't have the right company job. You're having them simply because you haven't taken the time to build a financial plan that meshes well with your working style. If you're trying to create financial security as an independent worker, but you are following guidelines that are designed for traditional workers, you're going to get yourself into trouble. It's like practicing to navigate a motocross course, only you're driving a minivan. You can't really be surprised if you crash.