Rolls of U.S. dollars. Plan ahead for the income gap. Pixabay
Rolls of U.S. dollars. Plan ahead for the income gap. Pixabay
Are you planning to take some time off? Plan ahead for the income gap.

Did you know that 36% of freelancers in the U.S. choose the path of full-time freelancing for the long haul? It’s an inspiring statistic that paints quite the picture of the freelance landscape, a road I decided to pursue in January 2023. Among the 70.4 million individuals engaged in freelance work nationwide, roughly 25.3 million brave souls have taken the plunge into full-time freelancing. But, before you decide to join their ranks or if you’re already part of this exciting world, there’s a vital aspect you need to embrace – the income gap.

As a full-time freelancer, the journey isn’t always smooth sailing. Income fluctuations are par for the course, and this can be a bit like tightrope walking without a safety net. But don’t worry; I hope to guide you through preparing for those unexpected dips in your cash flow. I’ve lived it myself and want to share what I’ve learned.

So, in this article, we’ll explore the nature of income gaps, discuss ways to build financial resilience and provide you with some practical strategies to thrive in the ever-evolving world of freelancing.

Understanding the Side Hustle (Full-Time Hustle) Income Gap

So, you’ve decided to dive headfirst into the exhilarating world of full-time freelancing, armed with your trusty side hustle. It’s an enticing journey, no doubt, but here’s the reality check – the income terrain in freelancing isn’t always smooth. In fact, it’s more like a rollercoaster ride, with peaks and valleys that can leave even the most seasoned freelancers gripping their desks.

What few writers come to grips with is how algorithm-driven their success is. Oh, and you can’t control an algorithm. You can market and promote your work and produce beautifully written content, but you can’t control the algorithm, especially when it comes to navigating the income gap.

As you transition into full-time freelancing, you’re bidding farewell to the paid benefits and paid vacation days that often come with traditional employment. Suddenly, the spotlight is on you to ensure financial stability, especially when you want to enjoy a well-deserved break.

According to a recent study, the income fluctuations for freelancers over the last two years have been a rollercoaster. The percentage of those experiencing a drop in their income steadily decreased from 55% in August 2020 to 52% in January 2021 to 29% in July/August 2021. This shows the nature of the game.

Building a Safety Net

Having a safety net is a must-have in the unpredictable world of freelancing, where income can resemble a rollercoaster more than a steady paycheck. The first and most crucial element of that safety net is the almighty “Emergency Fund.”

What is an Emergency Fund?

Think of it as your financial parachute. An emergency fund is a cash reserve explicitly set aside for those unforeseen expenses or financial curveballs life loves to throw at us. Whether it’s a sudden car repair, an unexpected medical bill, or a temporary loss of income, your emergency fund is there to cushion the fall.

How Much Should You Save in Your Emergency Fund?

Financial experts recommend allocating about 20% of your income towards savings, including contributions to your 401(k) and emergency fund. You can contribute to a 401(k) even if you’re self-employed. In my personal journey, I collaborated with my financial planner to set up a Roth IRA and a freelancer-specific savings plan. Retirement gurus suggest directing 10% to 15% of your income to your 401(k), leaving the remaining 5% to 10% for your emergency fund.

Tips to Get Started With Building an Emergency Fund

For starters, consider using the excess funds in your business account. Here’s how I do it: I funnel all of my income from clients into my business account, and then, like clockwork, I transfer a predetermined percentage to my personal account every week. The key is to transfer about 5% less than you could, effectively stashing away that extra 5% into your emergency fund.

With this strategy, you’ll steadily amass a cushion that’ll provide peace of mind when the income gap rears its head. Your emergency fund is your financial lifeline, and with diligent planning and a little self-discipline, you’ll have it at your beck and call when you need it most.

Budgeting and Financial Planning

Now that we’ve fortified the foundation with an emergency fund, it’s time to dive deeper into budgeting and financial planning. These are the secret weapons of successful freelancers, enabling you to survive and thrive in the freelancing game.

Creating a Freelancer’s Budget to Help Manage the Income Gap

Budgeting might not sound like the most thrilling aspect of freelancing, but trust me when I say it’s the unsung hero of financial stability in the freelance world. Picture it as your compass, guiding you through the maze of unpredictable income and steering you toward your financial goals. Whether you’re a freelancer or not, one highly effective budgeting approach is the 50/20/30 methodology. It’s this very approach that I write about for any budget-related article I write for my clients.

Why is a Budget Crucial for Freelancers?

In the freelancing realm, where the only constant is change, a budget becomes your rock-solid foundation. The 50/20/30 method is particularly effective. It breaks down your income into three categories: 50% for essential expenses (like your mortgage, car payment, and groceries), 20% for financial goals (think of your retirement account and that emergency savings we discussed earlier), and 30% for lifestyle choices (those dinners out or streaming subscriptions).

Tips for Crafting a Budget Tailored to Freelance Income

When I leaped to full-time freelance blogging, one of the first things I had to confront was the absence of paid vacation days. That might sound a bit worrisome, but it’s also the beauty of freelancing.

You can take days off whenever you want, provided you manage your client workload effectively. For me, this meant understanding how I used my paid time off in the past. I used it for family vacations, which averaged about two weeks a year. The rest of the time, days were scattered for school events, long weekends, and personal downtime.

The Importance of Tracking Expenses

This is a game-changer for freelancers, especially when tax season comes around. Setting up a dedicated business account based on your chosen business structure (like an S-Corp), is a savvy move. It helps keep your work and personal expenses distinctly separate.

Having a business credit card tied to that account simplifies expense tracking. Additionally, maintain meticulous records of subscription services used for your business. Come tax time, these records will be your best friends, simplifying the process and ensuring you don’t miss any deductions.

Diversifying Your Income Stream as a Freelance Blogger

While I may not have ventured into this realm yet, I’ve got big dreams. Imagine offering courses, seminars, or recorded webinars sharing tips and strategies that brought success in my freelancing journey. These offerings become indirect income streams.

You see, diversification isn’t just for the financially advanced. It’s a lifeline, especially when client work hits a temporary lull.

So, while I’m not there yet, you might be. The potential to generate income beyond client projects is a promising avenue for freelance bloggers. Explore it, nurture it, and your indirect income might save the day when you least expect it.

A Solid Budget is Your Key to Protecting the Freelancer Income Gap

While incredibly rewarding, freelancing comes with its fair share of financial unpredictability. Building a sturdy financial safety net, including an emergency fund and a well-structured budget is essential.

Personally, I plan my income expectations around 49 weeks of income per year, allowing for three weeks without earnings, though the likelihood is just two. This extra cushion provides peace of mind. And my budget is based on about 80% of my current income, offering delightful surprises whenever that freelancer paycheck surpasses expectations.

Now, it’s your turn to take action. Implement these tips and strategies to secure your financial stability as a full-time freelancer. Remember, you’ve got the power to thrive in this dynamic landscape.

Explore more insightful blogs on my Copywriting For You website, and if you’re a business seeking a skilled blogger, I’m here and ready to help you shine. Your success is my success.

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